Hong Kong Conference: Buy-side Follow-Up
With Emma Quinn, Head of Asia Pacific, AllianceBernstein, and Sam Kim, Head of Trading & Liquidity Strategies Asia Pacific, BlackRock
Emma: I expect dark pools to remain for any broker who wishes to offer a full service model. I also expect to see them move away from being mainly used as an internaliser for algorithmic flow to block trading pools.
The Onus for Best Execution: Buy-side or Sell-side?
Emma: We have always taken our duty to put our clients’ interests first very seriously. This has not changed. What has changed is the expectation that we can demonstrate this. Given this has not changed we do not believe the value that sell-side trading brings to the buy-side trader to diminish. The role of the sell-side is to ensure that the value that they are providing stays relevant.
Sam: The onus for best ex has always been with the buy-side. We are a fiduciary to our clients and are held to ensure we achieve the best outcome for them. The role of the sell-side has been to help us achieve best execution, whether that’s through providing market insight and colour, finding natural liquidity or building better tools. Based on the market and conditions in those markets and depending on our needs, the value of any one of those areas will increase or decrease.
Liquidity in Asian Markets
Emma: Liquidity is a factor we consider in all markets and is not just limited to Asian markets – you can have liquidity issues in small cap stocks in developed markets. We have a dedicated internal quantitative trading team who constantly review our transaction costs across all markets.
Sam: Any framework for evaluating best ex will need to take into account liquidity conditions for a given market. We constantly look at our t-cost models to ensure that our models are accurately predicting our actual trading costs.
The Changing Role of the Sell-Side
Emma: I believe that the recent years have forced the sell-side to review their business models. Whether it is certain asset classes, markets or division of roles. Each firm will need to make the decision that suits the majority of their client base and understand that the days of being all things to all people are behind us. I certainly expect to see sales traders needing to provide a more rounded service than just matching VWAP orders.
Sam: We believe that there will be a convergence of skillsets for the various types of execution roles. Different firms will structure their execution offering differently based on their business models, but we anticipate more firms will look to cross-train their salespeople across the different types of execution roles.
Fragmentation in Asia
Emma: In Asia we can see the benefits of a little fragmentation. In some markets the mere threat of competition saw the incumbent exchange innovate and lower costs. This is great for our clients. I do not expect to see the level of fragmentation that we see in the US or EMEA: however I would like to see monopolies disappear via some healthy competition.
Sam: We believe that a certain amount of fragmentation is beneficial as it introduces competition into the marketplace. However, fragmentation for the sake of complexity is an unnecessary development and does not benefit our clients.