By Neil Bond, Equity Dealer, Ardevora Asset Management
When orders hit the blotter I have already got the capabilities to analyze order characteristics – expected market impact and %ADV etc and I can use that information to slice and dice the flow into different strategies. The easy stuff can go through a vanilla strategy – VWAP, TWAP etc and the trickier stuff we can work ourselves according to the best strategy – IOIs, who has been trading the name, and trying to find a more sensible way to do the trades. We do like to use a lot of the dark pools for that as the anonymity levels the playing field between small and large players. We also split orders over different dark pools to find liquidity and minimize impact. We use in-house tools to monitor performance throughout and after a trade, and we look to see what we can do better and why. And we use 3rd party TCA tools to analyse trades over a longer period, particularly for peer comparison.
Ardevora funds are just over three years old and have recently surpassed the $1bn mark, so we are a relatively small firm but we are able to leverage technology, either in house or provided by brokers, that closes the competitive gap with larger firms greatly. We use Bloomberg AIM as it has multiple tools that you need for trading, and it also gives you what you need with regard to pre-trade analytics, and during the trade it can monitor performance and do post-trade analytics and TCA. Those tools help massively, and our size is often not a problem as a large proportion of our trades are executed anonymously in dark pools.
The biggest difference between small and large firms is the extent of bespoke automation of trading and monitoring. However there is a lot that we can achieve without a high level of customization.