Bringing The Sell-side To The Buy-side
With John Christofilos, Vice-President and Head Trader, AGF Investments Inc.
Looking back, my career developed on the trading floors in the financial district of Toronto, Canada. Fresh out of university, I began as an input operator, I was promoted to phone clerk and eventually became a licensed floor trader. I gained experience at Versus Technologies, E*TRADE Institutional and Canaccord Genuity.
As my career evolved, so did technology. It was a pivotal time in the sector as we tried to figure out how technology would impact the business and how the role of the traditional sales trader would change.
I looked at these changes and advancements in technology as an opportunity and transitioned to the upstairs trading desks and started a career on the brokerage side in both sales and trading.
An opportunity to influence change at AGF
In 2013, I made the move to AGF Investments Inc. (AGF). It was a great opportunity to work on the buy-side and I believed I could influence change and leverage my background in electronic and sales trading.
Although AGF had operated a certain way for a long time, they wanted technology to play a bigger role in investment management. I helped them find the best and latest trading desk solutions.
At the same time, the firm knew the methodology of trading was changing and liquidity was becoming more scarce globally, so I helped them understand and utilize all available liquidity pools for their clients and portfolio managers.
In this new role, I wanted to show that the buy-side was as knowledgeable and informed about what is transpiring and changing in our business. Traditionally, brokers have been seen as the keepers of the ‘secret sauce’ when it comes to market structure and order routing. But, today the buy-side is asking questions and have a better understanding of what’s occurring in the market. As well, they have the technology to thrive in this ever-changing landscape.
In essence, what I’ve tried to do is bring a little sell-side to the buy-side. We take care of every order that hits our desk like a sell-side trader would when they receive an order from a client. The only difference is my clients are my portfolio managers and analysts.
A new technology plan
During my first six months at AGF, I was tasked with implementing a new technology plan for the investment management department. I analysed all parts of the trading desk. I noted what was working and suggested what parts needed to improve. Ultimately, it was determined that both our EMS and OMS needed upgrading.
We went through a lengthy process to determine what options best suited AGF, from trading to portfolio management to operations and settlements. Today, we have end-to-end solutions and everything is done electronically.
We also introduced a new TCA process. This helps us monitor every trade that hits our trading desk. We review them at a firm level on a quarterly basis, at a desk level on a monthly basis and at an individual trader level on a weekly basis. I also stay on top of our trades with daily spot checks.
Staying on top of advancements in technology has been a running theme throughout my career. At AGF, we are continually monitoring new developments and conduct a more formal review every 24 months. This timeline allows our technology and operations groups to research enhancements, while still supporting our current infrastructure. Ideally, I would like to create a five-year technology plan, but the landscape is changing too quickly.
With experience, I know how and when to use certain techniques on the trading desk to gain an edge and how to decipher value versus noise. When discarding the noise, we look for what’s useful and how we can use that to achieve the best execution for our clients and for our portfolio managers.
Communicating with the Portfolio Managers
Communications is key at our trading desk. Working in a real time environment, we want to ensure that our portfolio managers and analysts know that we’re on top of the markets at all times.
During my time at AGF, I’ve looked for ways to enhance the way we share information between the trading desk and portfolio management department. My experience has taught me the importance of sharing knowledge. Our job requires us to act quickly and make informed decisions. In order to do this, we need to share information. Collaboration is a must on any desk. We operate as a team and I am proud of the way we communicate.
On the trading desk we rarely tell a portfolio manager or an analyst what stock to buy or sell. What we offer are three things: market intelligence; liquidity intelligence; and stock-specific intelligence. When we get an order, we share with the portfolio manager and/or the analyst what we know about that particular name; where we are in a market, where we are with this name, who’s been trading the name. The relationship between the trading desk and the portfolio manager has to be vibrant and in real-time. We have information on our desk that the portfolio manager may not know. We need to share that information with them to ensure they are part of the process.
When we have an order of any significant size or importance, we discuss it at the trading desk and with the portfolio managers and analysts. We work together to determine the best way to trade each particular order. For example, we ask ourselves: Is it on a block basis or do we do it electronically? Are we looking for facilitation capital or can we just work it in the market? Are we going to use the algorithmic tools or are we going to go to the open market? We also look at nine different pre-trade parameters that allow us to make the most intelligent decisions for our portfolio managers, our analysts and ultimately our end clients who entrust us with their money.
Managing the sell-side
The reality of my job is that we have to make quick decisions. We work in a real-time environment where money is made and lost in seconds. This approach can be unsettling for our partners on the sell-side, but this process works and allows us to trade and execute the most effectively.
If you look at our currency, which is our commission dollars, we want to spend every single dollar most efficiently. We want to pay brokers for the value and services they provide. The relationship must be professional and reciprocal from both sides.
At AGF, we have a formalised broker voting system that is used by our traders, portfolio managers and analysts. Our broker list had 125 brokers in 2013 and it is now down to 75 brokers globally. Ultimately, we’d like to take that to 50 and reward our best performing brokers for their service. Our process is dynamic, which allows me to have open conversations with our partners about their success or failure during a given voting period.
I consider the relationship with our broker-dealers as a long-term partnership that both sides have to work at constantly. The partnership is more attuned to a marathon than a sprint.
Today, the sell-side and buy-side have the same technological solutions. The days of the buy-side being disadvantaged because of a lack of content are long gone. If you look at the brokers that support us and help us, they all have fully functioning technology experts that update us on a regular basis to any regulatory or market structure changes.
It’s a very delicate balance on the sell-side, however, if they figure out what the buy-side is looking for and adjust to support it they’ve got a winning formula.
In Canada we have an organisation called the Buy-side Investment Managers Association (BIMA). It is comprised of 25 of the largest money managers in Canada and meets twice a year to discuss regulatory changes and market structure. Our discussion points are summarized and shared with regulators and the exchanges. This dialogue has given the buy-side a powerful voice and both the regulators and exchanges are spending more time listening, interacting and building a partnership that benefits the industry as a whole.
As the industry changes, we’ve had to be more proactive on both the trading and regulatory side and make an effort to interact with regulators, exchanges and brokers.
Over the course of my career, I’ve learned that development goals vary at each organisation. It really depends on the philosophy of the firm and is often shaped by the Chief Investment Officer (CIO). At AGF, our approach is balanced and thoughtful, supported by many years of industry experience.
At AGF, we are evolving and growing as a firm. From my trading desk to the office of our CIO Kevin McCreadie, this means staying on top of the latest trading, regulatory, market structure and technology developments to continually add value for our clients.
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