THE START OF A NEW CHAPTER.

It has been all change at Credit Suisse’ Advanced Execution Service (AES) group. After more than six years at the helm, Richard Balarkas left last year to be replaced by Manny Santayana, previously head of AES sales for the Americas. Meanwhile Rob Maher moved to London only two months ago and plans to leverage his experience in the US into the European markets. He talks to Best Execution about the firm’s plans.

Credit Suisse is considered a pioneer in the execution and algorithm space. Can you please tell me how the business developed?

Credit Suisse’s Advanced Execution Services was launched in 2001 in the US as a result of the changes in market structure as well as regulation such as decimalisation. Initially, the tools we built were for our own internal trading desk but the next year we offered them to our institutional clients. We are now focusing on realising the full potential of our AES product and have access to 60/70 liquidity pools around the globe. We are also growing the brand to include other asset classes particularly foreign exchange, options and futures, along with equities.

Can you expand a bit on your multi-asset class offering?

We have seen tremendous growth in our FX product [AES FX] which we launched last year. Algorithmic trading into foreign exchange represents a significant shift in the institutional mindset. FX is a very different marketplace than equities in terms of risk and price, and the majority of participants are not profit seeking. We have applied the same principles we have used in equities – anonymity, efficiency and smart tools – to find the best liquidity. Although you would expect the world’s largest marketplace to be very liquid, it has many different players and at times can actually be quite a fragmented market. The product enables clients to vastly increase the efficiency of their trading.

We went live with our AES Futures and AES Options products two years ago and we have seen and expect continued growth. Both offerings are available with a full suite of algorithms and analytics on more than 25 exchanges globally.

Do you think that Europe will follow in the US footsteps now that MiFID is a reality?

I would say that Europe is where the US was about two to three years ago. It has been about six months since MiFID was launched and all the telltale signs are there in terms of fragmentation. I think there will be a proliferation, and by the end of the year we could see five to 10 different multilateral trading facilities (MTFs) and then like in the US, there will be a shakeout. However, I do not think that Europe will experience the same type of severe fragmentation as the US. The markets here went electronic about ten years ago and they were more efficient than when the changes took place in the US. I believe the main differences, as well as challenges, in Europe are the lack of a centralised clearing facility and a single consolidated tape*. For example, without a tape, it will make it somewhat problematic for efficient price discovery across markets.

What lessons have you learnt from the US that you will be bringing over to Europe?

Part of the reason I am here is due to my experience in the US. Credit Suisse’s philosophy in the US is that we go out and talk to as many people as we can, whether it is counterparties, alternative trading platforms or investment banks. The same principles apply here. We are neutral as our goal is to find liquidity wherever it resides. This is why you have seen us striking alliances with alternative platforms such as Chi-X and Turquoise. Before we decide, though, we conduct rigorous due diligence and look at the technical aspects, pricing plan and whether we believe the business will fail or succeed in attracting liquidity.

The AES department is very much associated with Richard Balarkas, who has subsequently moved to become chief executive of Instinet. What, if any, impact has that had?

AES has never been about just one person. It has always been a team effort. We have been raising our profile to assure clients that nothing has changed and that we will continue to deliver the same standard of products and services they have come to expect. We have been recognized for our groundbreaking work in algorithms by several industry and client polls and we plan to build upon that success.

What do you think the next generation of tools are going to be?

The most important development to date has been smart order routing, which seeks out the best liquidity across multiple execution venues. This product has become more important in Europe since MiFID and its focus on best execution. The future is less likely to be about the next algorithm that is going to revolutionise the industry but more about helping clients implementing their specific goals. Clients want to have a choice as to where they trade – primary exchanges, MTFs, or other venues, and our job is to offer an integrated service, that includes best of breed strategies.

The ability to customise is also increasingly important. As clients have become more comfortable with using algorithms and measuring what works best, they have also become more forthcoming about what they want. The vast majority would like us to take the complexity out of the trade, and we have developed a global framework which offers building blocks that allows us to do that in an effective and efficient way.

How do you plan to retain your competitive edge?

There is tremendous opportunity in the marketplace but you have to continually re-invest in the business to ensure that you have the best technology, ideas, products, and of course people. That goal is to develop simple, efficient tools that clients can plug into their own networks and systems. This has been one of our main drivers and we are fortunate in that we are able to do this from a financial standpoint.

* Consolidated tape: a US, high-speed system that continuosly provides the last sales price and volume of trades in exchanges-listed securities