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June 1, 2011

Knight Edges Towards Blind-Risk

By James Armstrong

Knight Capital Group, which recently expanded its global program trading effort, is eyeing an expansion into the capital commitment game and moving in the direction of the blind-risk business. 

Jenkins Marshall

After launching a global program trading business in April, the next step will be moving out along the risk curve with regard to committing capital, said Jenkins Marshall, a managing director at Knight who co-heads the new division.

Though Knight has historically not been in the blind-risk business, it aims to eventually move in that direction once the appropriate systems and personnel are in place, Marshall said. He declined to speculate when that would be, adding the firm would do so once the right people and technology are ready.

Knight's program desks are now serving institutional investors in the Americas, Europe and Asia, a significant change for Knight, which has traditionally been focused on the United States.

"It's a natural evolution at Knight," Marshall said. "The institutional world benefits from the technology we developed in the U.S. marketplace."

Though Knight is primarily known for U.S. equities, it has long had a presence in London and more recently in Hong Kong, as well. Marshall said that once these offices achieved a critical mass, the logical progression was to introduce program trading to the international market.

Knight has increased its program trading desk from about 10 to 20 people, with new hires in London, Hong Kong and New York. The most high-profile addition was John Shaw, who joined Knight from Société Générale last fall and is now co-heading the global program trading business with Marshall.

"The nice bit with John Shaw and his team joining us, is there was a significant additive client base, as opposed to overlapping client base," he said. "It's a nice fit between our existing list of customers, versus their list of customers."

Though Knight's existing clients were not pushing the firm into the international space, they did indicate that there was additional opportunity there, Marshall said.

Before the firm can move into the blind-risk space, however, an additional build-out will be necessary, he said. "The person in the seat is a much bigger differentiator in the international arena than in the U.S. market," Marshall said. "We're adding personnel with experience in program trading, with a knowledge of the customer base, and we're adding in the technology space to fill the algos and the order management system to handle doing multi-currency, multi-country trades."

The firm has already engaged in a significant technology build-out to accommodate its new push into global markets, Marshall said. He noted that the international arena is more complicated not only because of the multiple currencies involved, but also because of the different settlement rules and regulations in different countries.

Knight's global trading effort offers equity program trading, index rebalancing and transition management. The firm is connected to more than 100 public and private markets worldwide.


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