Chief Revenue Officer at Quod Financial
Head of Equities Sell-Side Flows at the London Stock Exchange Group
Quod Financial’s Medan Gabbay and Refinitiv’s Richard Bateson share their take on the modern Sell-Side landscape, their beliefs on the future of the OMS as well as highlights of the partnership to date.
Sell-Side firms are starved for viable solutions to address their current needs. How is the Sell-Side OMS landscape changing?
Quod Financial: From a technology perspective, the OMS is obviously crucial to all of the Sell-Side workflows. Yet it is important to make a certain distinction between the way that the Buy-Side perceives the role of the Sell-Side OMS, and the way Sell-Side tends to interpret it.
The main goal on the Buy-Side is to transmit their flow to their brokers. Hence, there is a level of certainty expected, to ensure orders are handled efficiently, cost effectively, that the trade flow is optimised and the instructions are properly carried out by their broker.
On the broker’s side, their relationship with technology can be more challenging. Over the past 10 years, brokers have evolved from primarily voice trading to the e-trading space. Now, there is yet another revolution driven with automation and the volume of flow.
To date, market participants have often seen their Order Management Systems as glorified excel spreadsheets, rather than a tool that can truly help evolve their businesses. This is the shift. Seeing that technology providers can evolve their offering from a simple blotter to a tool that is actually informative to brokers on better ways that they could administer their flow.
One interesting change that we have structurally seen in the market, is that the Buy-Side is now rigorously assessing their brokers on the technology that they are using. They are no longer willing to directly release their flow to brokers, without that prior evaluation. It has become crucial to understand if the technology adds value to their business. These changes have been immensely impactful.
At Quod, we view automation to be as disruptive to e-trading, as e-trading was to voice trading. And it is the automation that is still lacking in many of the systems. Our main goal has been around making a change in the trading landscape, by investing all RnD into improving automated workflows, as well as partnering with Refinitiv and enhancing the set of tools for the Sell-Side.
Refinitiv: The Sell-Side OMS landscape is continuously changing. We have seen a move from voice to electronic. Then a battleground in electronic trading, as everyone was talking about low latency. Today, the Sell-Side is facing an ever increasing challenge around data points, which raises questions around best execution practices for their businesses and ways to manage those businesses in a controlled way.
“How do they use technology, machine learning and intelligence within the OMS, to decide on what to do with that order? How do they slice it? What is the time horizon? Which benchmark should they be using or which venue should they be hitting?” Questions arise around all the Pre-trade and At-trade decisions, as the Sell-Side wants to add more value when consulting with their clients.
Sell-Side is looking at the world, not only in a cross-asset way, but also with a goal to unite the systems and utilise data to make better trading decisions.
Fully integrated systems offer the benefit of synergies of market data with the desktop API or the server API. They allow traders to pick either a combination or a stand-alone functionality, yet be certain they seamlessly integrate into their workflow. And today, having that choice is the challenge that the Sell-Side is facing.
How do you think the Sell-Side will evolve from these challenges? And why is the partnership between Refinitiv and Quod so appropriate?
Refinitiv: When we look at the Sell-Side OMS, we recognise that it is strategically important for the future of our business. Refinitiv offers Buy-Side trading capabilities, Exchange, Post-trade and Analytics, yet one of the gaps that we have had was in the Sell-Side. With Quod’s solution, we have effectively gained a front to back offering.
But there are other reasons why the partnership is worthy. One can enhance and integrate Quod’s system into their architecture very flexibly. They offer a solution to integrate with any third party system as well, and so there is no restriction in terms of choice of components; whether the client is interested in Algos, TCA or other. The user has a choice of a modular type set-up or a full deployment.
Quod has invested a lot into automation, policies around trading behaviours as well as their execution capabilities, such as the Smart Order Router.
I have spent over 20 years on a trading desk, and I think that what a trader needs is a system that will help them make decisions and free up their capacity. A system that will allow the trader to predetermine a certain set of criteria and automate the low touch trades. Consequently, they can focus on problem solving and utilising the intelligence that is embedded into Quod’s offering.
Likewise, Quod Financial’s solution allows for significant cost reduction, by consolidating previously siloed asset classes, all into one solution. They are simplifying support around multi-asset capabilities.
Quod Financial: Exactly as Richard said, contemporary Sell-Side clients are cost conscious and are looking for a way to do more with less. These days, Sell-Side clients often have higher order flows and compressed fees. With a reduced cost base and fewer traders on the desk, they struggle for new ways to provide intelligence and specialism as a broker.
Meanwhile, the expectations and the obligations from the Sell-Side to the client are increasing. Normally, these would come hand in hand with increased spending, but the pathway today focuses on reducing costs while improving efficiency.
One of the key tenants for Quod Financial is the multi-asset solution, offering clients consolidation of multiple systems down to one. Consequently an individual system does not have to be low cost, but the replacement of multiple systems for derivatives, equities and FX with a single solution offers a significant cost saving.
Automation is no longer about reducing the headcount. The trading desks are already squeezed to a minimum capacity. Automation becomes about a transition from a traditional trader to an operator, focused on exceptions management of the flow that truly requires the human touch.
The pre-trade automation, the rules and consistency that can allow handling high volumes is there, embedded within the product and even allowing the interplay between different asset classes to really optimise flow. While the hedging effect is part of an equity trade that can find additional alpha for the broker as well as improving the overall cost base for the client.
There is a lot of expectation put onto the Sell-Side trader and to the broker about performance and it is immensely difficult to address this topic. Getting feedback from the Buy-Side based on a TCA report, whilst being in the hot seat, with thousands of orders coming in, can be a daunting experience. The reality of having a question posed to the trader is that they rarely actually know how to solve that problem, being faced with varying market conditions and thousands of system parameters that could have influenced the execution outcome.
Therefore, it is important to differentiate automation, which nowadays is a must. If you are looking at a platform today, if it is not automating your flow, you should not even be considering it. That is the absolute minimum standard.
For Quod Financial, the future of the OMS is using machine learning to feedback suggestions based on an execution outcome. Strategically, that is a key functionality of the combined offering Quod is presenting with Refinitiv.
Refinitiv: Heads of Trading in a lot of banks face the same type of a challenge, which is the existence of multiple risk systems anchored within their tech ecosystems. Getting rid of those systems can take years, which is a huge drain on Capex and Opex. Luckily, more and more organisations acknowledge that high quality technology does not always have to be built in-house. By outsourcing technology elsewhere, they can free up Capex to do something else. This shift in perspective plays into the landscape of Quod Financial’s positioning.
What is the future of the Sell-Side desks?
Refinitiv: There has been a huge amount of consolidation and to a certain extent, we are probably at the bottom of that now. We have definitely seen that there are large banks, global brokers or niche brokers, that focus on different liquidity landscapes, and so there are very different opinions on how to execute business. The problem is in the significant fragmentation across all asset classes, since challenges arise around navigating such a sophisticated market landscape. So the future of the Sell-Side desk is around finding the best way to interact with that market and using technologies that will allow trading an algo, putting a trade on a periodic auction, hitting the lip market or using an RFQ to trade an FX, Fixed Income or the ETF. All of those types of protocols are available within our LSEG Group and we support these workflows.
But also, the future is about getting the right data, around both market data and API, to fuel these decisions. Sell-Sides need to find better ways to rationalise the data they pull in and how they drive the right commercials of the data. In addressing that fragmented market, one must also re-imagine access to data and incorporate machine learning into decision making, to access liquidity in an intelligent way and consistently provide best results for the clients.
There is also a move towards more difficult liquidity. Therefore the Sell-Side truly needs to focus on using smart technology to free up capacity, to better address the really tough trades, differentiate, get better outcomes and consequently more business for their clients.
Quod Financial: Everything that Richard has said was so comprehensive but also in many ways so overwhelming, due to the number of considerations that the Sell-Side firms have to face, be it market access, data, modelling, TCA, ways to handle flow, ways to approach clients, as well as products they are offering.
Whether one is looking at Quod Financial as a vendor, or Refinitiv as a vendor, there is the same underpinning message, namely choosing ‘smart technology’. There is a shift from using traditional vendors that will build what you ask, to working with innovative partners who are trying to change the underlying technology landscape. Therefore one should be looking at choosing partners, rather than vendors, who can work with them over time to achieve the priorities that are relevant for their business and their clients. Every Sell-Side will have that niche that they are working with, whether it be a slightly different perspective on best execution or order handling.
We talk about the concept of Buy and Build, to take a product that forms your core and gives your traders and your clients the stability. With that stability one can customise workflows, but without changing the product. Consequently, there are no more additional costs related to Dev, and the architecture offers self-service tools that allow you to manage automation, build algos and create multidimensional risk tapestries that are specific to your business. This self-service design unlocks access to technology that was otherwise only available to large Tier 1 banks, with quants and analysts that can focus on such part of the technology stack.
Smart technology, open partners and availability of data are the three things that are the core of the changing Sell-Side landscape.
To find out more about the partnership visit Sell-Side trading at Refinitiv.com
About Quod Financial
Quod Financial is a multi-asset OMS/EMS trading technology provider focused on automation and innovation – specialising in software and services such as Algorithmic Trading, Smart Order Routing (SOR), and Internalisation of Liquidity. Quod leverages the use of its data-driven architecture to support the demands of e-trading markets by combining AI/ML-enabled decision-making tools and dynamic market access with a non-disruptive approach to deployment. For more information visit: www.quodfinancial.com
+44 20 7997 7020
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