Word for Word

Bill Bell is a managing director and head of equities electronic distribution for the Americas at Barclays Capital. He spoke at an industry conference in New York about the role of the sellside and the challenges facing the buyside. 


* On accessing liquidity

The order is routed based on certain market conditions and order characteristics. The volatility may be high and the average daily volume is low. Instead of spraying all venues, perhaps given the order characteristic, we decide to just hit the lit venues. Another order has a different volatility. A different ADV. We decided to hit the dark. Took a little lit. But we left a lot in the dark and lit liquidity. It’s real-time; not static. We’re adjusting to the new age of accessing liquidity. When you evaluate sellside partners, you don’t want to choose people using static routers.


* On aggregating liquidity

So how does institutional flow interact with multiple party types? Flow comes in. It can transact with institutional; with broker-dealer; with internalized desks; with retail; and also with high-frequency market makers. As sellside counterparties, we need to become global liquidity powerhouses where not a share of business leaves our four walls–a global liquidity center. The buyside lines up all the different desks and liquidity pools it can deal with. The sellside has to leave it up to the buyside to have control and let them drive the bus.


* On the abundance of algorithms

From the buyside, we hear there are too many algos to choose from. If I sat in the head trader’s seat and I dealt with 10 to 20 providers and each is giving me 10 to 20 algos…How can you become relevant and possibly understand exactly what each and every one of those algos do? It’s impossible.


* On reducing the number of algorithms used

How many algo providers do you have? Do you have 20 providers? That’s a lot.

Let’s say you do. What we need to do is thin down the herd. The way we do that is to sit down and get strategic with the head trader and ask them to define a set of algo parameters. Give me your two best. I don’t need your 10. I don’t need your 20. Give me your two best. It could be an aggressive; a VWAP; an implementation shortfall strategy. Then you take your providers and their two or three best. Then you understand the strategies. You’re underneath the covers. You’re understanding the way the algo is interacting with the market. You can understand if it’s interacting with good or bad liquidity.


* On "canned" algorithms

VWAP. TWAP. Percentage of volume. Forget about it. They’re commoditized. Over a period of time, there’s not one difference between one provider and another. It doesn’t matter. Maybe a basis point here or there.


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