Shaking up markets
David Miller, EMEA trading at Invesco UK
Earlier this month, the European Commission published its delegated acts on MiFID II. The Buy-side Perspectives caught up with David Miller, head of EMEA trading at Invesco UK, to share some thoughts around regulation, trading venues, broker relationships and how electronic trading is changing.
Q. What are your thoughts on the increasing levels of regulation faced by the buy-side?
David Miller: Regulation will have the biggest effect on our ability to trade going forward – how it will affect liquidity, in particular dark trading. The increasing cost of capital will also become a major factor.
Q. How do you feel the new regulatory environment, in particular MiFID II, will affect the trading landscape?
David Miller: A shake up is inevitable in trading venues. Dark pools will change the way they operate, and I do expect a reduction in the number of trading venues available to buy side traders. There are aspects of the MiFID II regulation that I see as an attempt to move more trade onto the lit markets, but some orders and stocks really don’t benefit from trading on lit venues. I believe we will see an increase in broker intermediated block trading. As regards small and mid-cap stocks I do not believe there is much, or has ever been much depth in the lit markets, and we will continue to utilise more specialist brokers to source liquidity. Our concern is that those brokers may reduce in number in the Future.
Q. Speaking of brokers, how do you feel the relationship between the buy-side and the sell-side is changing? Have you considered reducing your broker list? And how do you feel about the challenges facing the sell-side?
David Miller: We have always had an extensive broker list. With regulation, empowerment of the Buy Side, automation and unbundling, their (brokers) cost models are undoubtedly under pressure. We very much hope they survive and have no plans to reduce our broker list. Any trader will always argue for more counterparties as there is always the chance that one specialist that you rarely speak to will one day have the other side to a crucial trade. It is entirely possible that there may in fact be additions to our broker list in the future. New additions are now judged on the quality of their flow, and access to liquidity.
Q. Given the increased regulatory scrutiny on buy-side firms, what steps have you taken to handle due diligence?
David Miller: We have recently utilised an Industry standard electronic order handling questionnaire to enable us to better understand the way in which all our counterparties manage our orders. This is not specifically focused on algorithms, importantly we are interested to know the way in which our flow is exposed to the various venues, and any associated risks.
Q. How do you choose the electronic trading services you purchase, for example algorithms and other trading tools? Is it the case that many trading tools are commoditised?
David Miller: When it comes to choosing an electronic provider, we tend to look for something different, something unique aside from the basic suite functions, such as VWAP, DMA and some other generic tactics which by definition are the same across all providers, and while it is getting harder to differentiate we have found it is still possible.
Q. The cost of data has been an industry talking point for some years. How do you feel about the cost of data? Do you think the regulator should step in and take a more active role?
David Miller: The cost and quality of data will undoubtedly increase going forward; we hope that future regulation does bear in mind the associated costs as regards the buy side and our requirements.
"A shake up is inevitable in trading venues. Dark pools will change the way they operate, and I do expect a reduction in the number of trading venues available to buy side traders.
"We are interested to know the way in which our flow is exposed to the various venues, and any associated risks."
Head of Global Buy-side Research