Convergex’s Noll Talks Technology, EMSAC (Part 2)
Markets Media interviewed Eric Noll, president and chief executive officer of agency broker Convergex, on June 9. This is the second of two parts.
How hard or costly is it to keep pace with all the technology needed to trade in today’s market?
When we think we can add value to our clients with technology then that is a space that we want to be part of. When we look at execution tools, trade analytics and keeping our dark pool technologically relevant, we tend to invest heavily in technology. However, sometimes it makes sense to use the technology of other providers. There may be better solutions to us building some things ourselves. We don’t, for example, see the need to build our own front end in equities because there are countless great companies out there who already do that. We focus on building the things that really add value to our clients and outsource the things that we don’t think are going to help us add value. That philosophy helps us control the costs of the implementation and also enables our technologists to focus on where we want them.
Does that make it easier to manage technology costs?
I don’t think it’s gotten easier but I think the focus and dynamics have changed. As someone who is on the SEC Equity Market Structure Advisory committee and involved in a lot of the market structure conversation, there are always new things and changes being proposed by regulators, the SEC, the exchanges, and it is important to keep up with those changes and proposals. All of the proposals and pilot programs can be time consuming and expensive and you have to understand them.
While technology tends to focus on algorithms and router logic, is there some piece of technology that has been overlooked and may need updating?
Algos tend to be a hot topic and everyone wants to talk about the next one. The reality is that the issues that our clients face are manifold and there are other areas – such as commission management that require more technology spending. How do you manage your soft dollars? How do you manage your CSA spend? How do you manage your recapture spend? That’s particularly true in a more complicated world now where Europe seems to be going in a different direction than the U.S.
We need to provide those tools to clients so they can better manage their balances, manage their commissions in the appropriate way. That helps them generate alpha. How do we make our recapture business stronger, more responsive to help with commission management? There are many other areas that I think are in need of better solutions – such as TCA. There hasn’t been a lot of innovation around post trade analytics and TCA in a long time.
Is the focus still on post-trade information? Or has it changed into evaluating best execution?
The buy side is indeed more focused on best execution analysis. It involves some questions like, what happens if my order was routed to dark pool A and I had a 2% fill rate there, what benefits did I get from going to that dark pool? What was the harm to my order by going to that dark pool? By going there and getting only 2%, did I contribute to information leakage in my order? Did it slide away from me?
Another important issue is allocations. While this may sound really boring, Convergex, as well as other firms, face this when you have a large client base that has many sub accounts. Maybe they’re a UMA provider or some other manager where you have to allocate trades through any number of sub accounts in the appropriate way. How do you do that so it’s seamless? How do you do that so that everybody gets their fill in the appropriate way? There are tools and techniques out there to make that happen, but when it doesn’t work, it can be bad for the client. Getting those allocations right becomes very, very important and that is when you need both service and technology to make sure that works.
What’s next for EMSAC?
The next formal meeting of the whole committee is August 2nd. It’s highly likely there will be an interim phone meeting between now and then. That phone meeting is really to consider approving an access fee pilot for the markets at large. It’s sometimes referred to as the maker-taker pilot, but it is really about access fees.
How about the Consolidated Audit Trail? Will it ever get built?
It will and I think we’re all waiting to see what the form is going to be and who the providers are going to be around it. The concern is that when it is built is to make sure it replaces a lot of legacy systems already out there like OATS and some of the other FINRA reports. There’s real value to the CAT information but it should really be replacing tasks that we shouldn’t have to do any more. There is also the cost — the CAT must be as cost-effective as possible.
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