Tim Bourgaize Murray: Heads of Trading, Back with a Vengeance

As Curt Engler told me when we met for the Waters profile interview last month (see page 20), the equities market has a problem with block trading. But there is a graveyard of once-promising dark pools out there, stopped dead in their tracks because they couldn’t actualize the transparency and protections that large investment managers need in order to participate and remain engaged. “When you promise one thing, but deliver another, that’s what happens,” he said.

Engler is acutely aware of that risk in his role as a board member of Luminex, and it will be crucial going forward. After all, 2015 could eventually be known as the year the buy side took on dark pools and won, with the Plato Partnership—buy-side driven though backed by several broker-dealers—ramping up in London, too.

Impetus
Such a determination is still years away, but the mess in dark equities trading on both sides of the Atlantic has certainly created an impetus.

In the US, several dark pools are under investigation for various securities law violations, but specifically for not adequately disclosing the routing logic and nature of the participants (read: HFT shops) interacting on the platform. Credit Suisse, to name one, is in talks to settle with the Securities and Exchange Commission (SEC) and New York Attorney General’s office for $80 million in penalties and disgorgement after its CrossFinder ATS was investigated. Meanwhile, Barclays—the first bank-owned dark pool to come under scrutiny—immediately saw its volumes drop by a third.

In Europe, uncertainty has lasted for years around the rules for dark pools under Mifid II, including explicit caps on trading that could make operating a venue uneconomic for many. With fewer options for trading overall, many buy-side firms will have to get even more creative about where and how they can get large orders done.

I would argue that the success of any new venue—even one where a firm has an ownership stake—is tied to participants’ ability to assess and adapt to its unique contours, user base, and rules. After all, transparency isn’t worth much if you don’t know what to do with it.

It is little coincidence, then, that Luminex and Plato have both arrived at this moment after years of under-the-radar development. The question now is whether they will thrive, and the extent to which technology can aid them in that quest.

Light From Within
I would argue that the success of any new venue—even one where a firm has an ownership stake—is tied to participants’ ability to assess and adapt to its unique contours, user base, and rules. After all, transparency isn’t worth much if you don’t know what to do with it. And this speaks to the other major focus for Engler over the last 36 months or so: redesigning JPMAM’s execution platform with greater behavioral analytics, visualization and routing capabilities.

It was fascinating hearing Engler’s perspective on the firm’s goals—better alignment between trading strategies and portfolio management styles, a balance of outcomes in terms of furnishing and taking liquidity, and reacting better to bouts of episodic volatility.

Also interesting was the process the firm took to get there in co-developing the platform with Portware, a partner vendor going back to at least 2013, and which was recently acquired by FactSet. 

As Portware’s CEO Alfred Askandar explained to me, the new implementation now reaches far deeper too, delivering “visualization tools allowing JPMAM to trade directly from a series of customizable visual representations and intelligent trade execution across multiple trading desks and asset classes including equities, derivatives, and fixed income.” 

It doesn’t stop there, either: Late last year, JPMAM implemented the platform for its business in Japan, Hong Kong and Taiwan after already expanding to Europe. “Mainland China and India are next,” Askandar added.

Stronger By The Day
Which brings me back to Engler, who proudly argued that he envisions much of equities’ advanced tech work fanning out to other markets soon—with some equity trading heads already pulling in certain additional asset classes, remaking the desks in their image and expanding the stanard to other geographies.

While global equities and US equities in particular still present serious challenges for large managers, the model for moving forward—with safer venues on one side and more intuitive execution on the other—is alive, well and growing stronger by the day.