01 April 2007 News

 

Achieving optimal trading performance post-RegNMS

One of the challenges market participants face in the post-RegNMS environment is positioning their trading desks for optimal performance. Panelists at the TradeTech USA conference discussed capacity and the physical ability of technology to handle the inevitable increase in data. Next, they talked about the material impact of increased capacity. Finally, they addressed trading style.

Will Sterling, the managing director responsible for the global equities electronic trading business at UBS, said there have been significant hardware improvements over the last few years, but a lot of the software is going to struggle over the next five years to deal with capacity constraints. “You’re going to see a separation of some of the firms that really can deal with this well,” he said. “And that’s true in the vendor community, in the broker community and in the exchange group.”

Panelists noted that 25 years ago the average daily volume on the NYSE was 35 million shares a day. Today, more than 6 billion shares are traded on an active day. The increasing volumes inevitably will stress the market structure.

The trade through definitely is going to just compound that issue. “You talk about algorithms and fighting for price protection and moving from venue to venue or trade center to trade center trying to get positioning. There’s going to be huge amounts of data being generated,” said Bill Stephenson, senior vice president of global trading at Franklin Templeton.

Dan Mathisson, managing director and head of global advanced execution services at Credit Suisse, talked about how Reg NMS will affect the bank’s trading style. He said the bank will likely use immediate or cancel orders (ICO) and inter-market sweep orders (ISO), as well as market on open or market on close orders. However, it will avoid plain vanilla market and limit orders, because they may be re-routed by the exchange. “We feel that’s essentially the job of the broker-dealer,” he commented. “That’s not a decision you want to delegate to the exchanges.”