BLAZING THE EXECUTION TRAIL.

For the past ten years, Alasdair Haynes of ITG has been extolling the virtues of transaction cost analysis and crossing networks. The buyside have been slow converts but the momentum is gathering pace now that MiFID is a reality.

ITG has been preaching about best execution and TCA ever since it landed on these shores. Do you finally feel vindicated?

When ITG first opened in Europe in 1997, the whole idea of using crossing networks and transaction cost analysis was seen as an American phenomenon. It has been amazing to see how the market in Europe has changed. The market structures are so different now than just a few years ago. Today, there is a choice of crossing networks, direct market access (DMA) and algorithms. Technology has been the driver but regulation has allowed companies to be innovative and entrepreneurial with their solutions. I see MiFID as the watershed moment in our business, and it endorses our business model. Article 21 outlines requirements for best execution and an “obligation” to look for all forms of liquidity, such as ‘blind’ or anonymous crossing with counterparties at the mid-point of the bid/offer spread. In the past, traders went to the stock exchange to get the underlying price, which was an inaccurate way of doing business.

But, people must understand that best execution is a process and not a safe harbour price. It involves the optimal way to trade. The difference today is that asset managers have a much greater choice in terms of how, when and where to trade – and this is expected to only increase under MiFid.

How have things changed for ITG in particular?

When we started we were a single product company and now we have developed a multiple, integrated product offering, which aims to provide end-to-end trading solutions. We realised clients want the whole package – pre-trade and post-trade analysis, trading products and services, and portfolio analysis. Our main focus, though, has remained the same throughout the years – the quality of execution. I like to compare our technology with the satnav (satellite navigation system) in a car. It tells you how to drive in a more effective and efficient manner, points out which roads to take and how long it will take you to get to the final destination. For example, our pre-trade systems will tell the trader which market to route to and what costs will be incurred in the process while real-time analytics will allow for alterations in market conditions, just as a satnav system will guide a driver around accidents and traffic jams.

The last nine months has been difficult for the financial services industry. How has ITG fared?

For the short term, I think it will have an effect but if you take a five year view, the impact will be minimal. Take the Asian crisis. There was a delay, but companies stayed on track and continued to invest. For us in Europe, 2007 was a great year, with revenues rising almost 60% and profits increasing by nearly 70%. Looking ahead, we are doing what we have always done – looking for the opportunities and then positioning ourselves to take advantage of them. We have several new products in the pipeline such as more algorithms, smart routing solutions and additional global trading products.”

You made the headlines last year with your “dark pool” product, POSIT. Can you tell me more about the latest addition launched at the end of this past February?

POSIT Alert is the latest  addition to our POSIT  suite of crossing solutions  which also includes  POSIT Match and POSIT  Now. POSIT Match offers  scheduled crosses with  concentrated liquidity that  enable institutional traders  to anonymously match  orders. POSIT Now provides continuous crossing throughout the trading day. Since MiFID, POSIT is now categorised as a multilateral trading facility.

POSIT Alert will have all these benefits plus the added functionality of an alert system which will notify clients each time there is a natural matching opportunity. The way it works is that POSIT Alert will search for trading opportunities with other clients that have opted to participate. When the system identifies a match, a pop-up message alerts the trader, who can decide whether to trade and in what quantity. The trade crosses at the midpoint price of the underlying market price and there is no negotiation.

I also see you are making a push into Asia Pacific with Triton, the execution management system. Can you expand upon that?

Fund managers across the Asia-Pacific region are facing the same challenges in terms of trading in multiple markets with different exchanges, currencies, regulations and market structures. They are also facing greater complexity as well as more pressure to prove best execution. Triton enables the buyside to trade over 30,000 equities via multiple destinations across the Asia- Pacific markets. They can do this from a single application on their desktop, rather than having to access different multiple exchanges, brokers and algorithmic trading tools individually. Triton creates a single platform for finding liquidity, executing trades, and also for analysing and managing the costs of the entire trading process. We have introduced Triton already in the US and European markets, and the goal in 2008 is to fully integrate the regional systems to deliver truly global trading from a single platform.

What other new products do you have in the pipeline?

This year we will be working on Triton X, a product which will integrate our execution management systems with our order management systems to provide a more effective and efficient service for the buy-side. We will also be working on the next generation of algorithms, which at ITG are divided into three categories – dark, single-stock, and list-based algorithms. In many ways, we have only scratched the surface in terms of what these tools can do and we want to move them to the next level in terms of sophistication and technology.

There are now several competitors in the marketplace jostling for position, do you think you have first mover advantage?

I am not sure how important first mover advantage is. What is important in this ever changing and complex market is to keep running on full and not drop the ball. We know what we want to achieve and have a clear vision of the products and solutions we want to deliver. However, in order to stay a leader, you must also be able to change and adapt.

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