Liquidnet at TraderForum Equity Trading Summit

Jeff O’Connor | Head of Market Structure + Co-Head of Coverage, Americas

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What’s been happening

On May 28th, 2024 U.S. equities will settle the next day. The precedent was previously set in 2017 from T+3 to T+2, so there’s no reason to think this change can’t go smoothly.

There was already significant exposure provided in 2021 with regards to settlement and how it relates to margin, operational, and counter-party risk. This was front and center as the new SEC regime took hold and placed it as a priority. The change also has broad support with organizations like SIFMA, Investment Company Institute (ICI), and Depository Trust & Clearing Corporation (DTCC), who are all working together to forge the path forward from T+2 to T+1.

Why it matters

The bulk of this burden, however, will be felt on the sell/supplier side of the equation. They’ll need to invest now to reduce process times, automate, and generally upgrade all operational elements including technology, people, and processes in preparation.

All players will be as strong as their weakest link. Brokers who can’t comply with new standard will have business impact due to end client frustration, which they’ll pay through punitive penalty.

Two questions you should ask during the panel

1. How will T+1 settlement affect risk management and margin requirements?

2. What will be the impact on trading strategies and liquidity management?

Jeff Schwartzman | Head of Liquidnet University

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Why this topic matters

For years we’ve heard from traders that their work should speak for itself. The unfortunate reality, however, is that many trading desks are seen as execution-only, essentially placing the pressure on traders to focus on avoiding mistakes rather than acting as the integral part of the investment process that they are.

Food for thought

How do traders demonstrate the value of the desk to the firm’s success? How should buy-side desks position themselves as an integral part of the investment process?

First, be purposeful with what you communicate. It’s critical that you’re clear of your value beyond the Transaction Cost Analysis. Start by asking yourself – how does the desk add to the firm’s bottom-line?

Second, be strategic with how you communicate. Having a personal (or desk) brand requires multiple forms of communication and a meaningful frequency.

Third, ensure that the entire trading desk is singing from the same hymn sheet. Each person on the desk is a representative of each other. How you show up matters, not just for yourself but for your desk as a whole.

What next?

If you struggle with this or want to understand more, our Liquidnet University offers an opportunity to learn and grow through Headway (March 19-21, 2024). Reach out to your relationship manager or contact me (jschwartzman@liquidnet.com) to learn more.

Two questions you should ask during the panel

1. How do you define and measure success beyond managing trades?

2. What should senior traders do to lead their desk strategically and, ultimately, provide visibility and tangible value to your firm?

Jeff O’Connor | Head of Market Structure + Co-Head of Coverage, Americas

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What’s been happening

Despite a closed comment period since last March, the SEC has yet to provide thought, details, amendments, etc. in response to the flurry of industry comments delivered on their latest proposal, in such a condensed time window.

There are whispers that we’ll see the SEC’s strategy for moving forward come December – possibly in an attempt to accomplish something prior to year-end. This would make sense in regards to the less controversial components of the proposal – i.e. best execution or execution transparency.

In regards to the more controversial proposals, the SEC will possibly reveal their strategy of extreme proposal followed up by dimmed down versions but it’s anybody’s guess.

Why it matters

From an institutional investor perspective, the delay in the SEC's response and the uncertainty surrounding their strategy for market structure changes are of significant concern. Of particular note is the potential impact of variable tick sizes could be the most impactful, possibly further fragmenting liquidity at price points.

The outcome of the SEC's decisions could have far-reaching implications for how institutional investors navigate the markets in the future, making this a critical issue to keep a watchful eye on.

Two questions you should ask during the panel

1. How can traders prepare to navigate potential disruptions in liquidity and execution quality?

2. What’s the potential impact on the way buy-side traders measure and achieve best execution?

Jennifer Hubbs | Head of the Trading Desk, Americas

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Why it matters

The US equity markets are certainly the most fragmented in the world but does that necessarily translate into liquidity and efficiency? I often wonder if fewer venues would be better for the end investor in the long run.

One thing is for certain: not all liquidity is equal.

Food for thought

It’s easy to get lost when navigating a complex ecosystem containing dozens of venues, including lit, hidden, dark, single dealer platforms, and market makers, each with their own “value add” order types.

As such, it’s important to choose partners with deep knowledge of this landscape and the technology to access the best set of venues for different stocks and strategies.

Two questions you should ask during the panel

1. Does fragmentation translate into liquidity and efficiency?

2. Is equity trading as commoditized as many think?

Roland de Marsangy | Head of Business Development, APAC

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What’s been happening

Over the past 18 months, both China's CSI 300 and Hong Kong's Hang Seng stock indices have faced challenges, experiencing YTD declines of 6.45% (or 11.33% when adjusted for USD currency) and 11.10%, respectively.

As a result, investors have been exploring alternative opportunities in the Asia-Pacific region, particularly in India and Indonesia, driven by both market performance and geopolitical factors.

Despite these challenges, China, as the world's second-largest economy, continues to be a significant player that cannot be overlooked.

Why it matters

Foreign investors have several options for investing in China, including American Depositary Receipts (ADRs) traded in the US, stocks listed in Hong Kong and StockConnect, or onshore investment through quotas like QFII/RQFII.

A noticeable shift has occurred, with ADRs decreasing from around 20% to under 10% of foreign institutional investors' exposure to China, while StockConnect has emerged as the preferred investment route.

It is evident that regulatory authorities are implementing changes to impact the activities of both local and foreign investors. Some examples of these changes include a 30% reduction in the securities transaction fee and a 50% reduction in the stamp duty in China.

Shanghai and Shenzhen are also considering extending their trading hours, while Hong Kong has cut its stamp duty by 30%. Additionally, StockConnect has seen an expansion in its Northbound and Southbound stock universe and as a result, HKEX is collaborating with regulators and the industry to introduce block crossing on that segment of the market.

Two questions you should ask during the panel

1. How does the recent expansion of Stock Connect, incorporating Hong Kong-listed foreign companies in Southbound trading and the introduction of the HKD-RMB Dual Counter Model, impact the risk-return dynamics for traders engaging in RMB-denominated stocks in Hong Kong?

2. In light of the evolving opportunities in China's investment landscape, what strategic considerations should traders keep in mind to navigate the complexities introduced?

Jennifer Hubbs | Head of the Trading Desk, Americas

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Why it matters

Exchange Traded Funds (ETF) certainly resemble equities in some ways, but it is important to understand that they are a vastly different product and need be traded accordingly. The liquidity, impact, and fair price characteristics that we are used to looking at can be quite deceptive, and need to be measured taking the underlying basket into account. It’s vital to work with partners that understand this landscape, can guide you through it, and have the right tools to interact.

Food for thought

So what does a “partner that gets it” look like? It, of course, includes RFQ platforms that access the right set of counterparties, and the experience to evaluate when to leverage them. And then, there is Liquidnet, where we take the same thoughtful approach to finding liquidity for ETFs as we do everywhere else. It’s what we do best.

Two questions you should ask during the panel

1. With the proliferation of RFQ platforms in the ETF trading space, what key factors should traders consider when determining the best partner?

2. Are there specific best practices or strategies that can help optimize execution quality?