Q&A with Goldman Sachs' Tierens
Traders Magazine Online News, May 13, 2011
Ingrid Tierens, co-head of the electronic trading "strats" group at Goldman Sachs Electronic Trading (GSET), spoke with Traders Magazine recently about new developments in the world of algorithmic and electronic trading. Among the topics discussed were: the next generation of algorithms, order transparency and algorithmic testing.
Traders Magazine: What new trends are you seeing in algorithms or in electronic trading?
Ingrid Tierens: I would say a couple of trends in the algo space are noteworthy. First, clients are asking for increased transparency as to what is happening with their electronic orders. We are getting more and more requests related to how we end up choosing one venue over another, how our order placement logic works, etc. We haven't waited for clients to reach out to us --we've done this proactively and published a lot of research around the turn of the year on this. We are trying to provide a framework on how to think about order routing and to help bridge the knowledge gap by providing clients with metrics to help them think about how this all works. We go as far as developing client-tailored analyses. This has been a theme we've seen over the last 12 to 18 months.
TM: What else is on clients' collective mind?
Tierens: A second theme in the electronic trading space is that even though at first glance the many providers in the electronic space may have similar suites of algorithm, there is the realization that not one size fits all. Our clients are diverse - the spectrum ranges from very quantitatively, shorter-term focused clients to customers that are fundamentally driven and have a much longer investment and trading horizon. The last thing we would advocate is that all these diverse clients trade the same way even if they have access to the same types of algorithms.
TM: How do you do this?
Tierens: We spent a lot of time with our clients to think about how we can fine tune the algorithms for their specific usage. There are a couple of different ways we go about it. First, we provide a broad range of post-trade execution quality analysis and consulting to clients. One obvious limitation we need to keep in mind when we work with clients is that we only have access to the flow they send through Goldman Sachs and can only do analysis based on what we're seeing. However, to the extent that the client wants to partner up with us, we can delve deeper and potentially come up with ideas that might meaningfully impact the way they trade.
TM: Can you elaborate?
Tierens: Let's say we have a client who runs several types of investment strategies running and different traders execute each strategy. When we look at all their executions in aggregate, put them into a big pot if you will, nothing interesting may jump out. However, once the client flags that the aggregate flow represents these different strategies and we are able to analyze them separately, we may come up with our advice on how to execute each strategy in a more optimal way. It might be because the PM for one strategy has a short-term momentum approach and another PM runs a long-term value fund.
One person in our group is fully dedicated to execution quality analysis on behalf of our clients. We've expanded our execution quality analysis quite a bit over the last one to two years. Two years ago a client might have been happy with a standard report, but now we end up doing more deep dives to really consult with our clients and I think they're really interested in hearing what we have to say given these deeper examinations.
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