BMO Capital Markets is launching algorithmic trading in European equities where the Canadian bank believes it can gain market share due to its systematic approach to trading, market structure proficiency and modern technology.  

Joe Wald, managing director and co-head of electronic trading at BMO Capital Markets, told Markets Media that it is the perfect time to launch into the competitive European environment. 

“We are the fastest growing institutional algo provider in North America due to our experience and expertise in market structure, as well as our development prowess and financial technology,” he said. “We think we can have an outsized positive impact.”

The European instance of the Algorithmic Management System (AMS) has been built from the ground up, specifically for the region’s market structure, over approximately 18 months, including during the pandemic lockdowns.

Wald highlighted that the European landscape has gone through a tremendous change in regulations and market structure. For example, the European Union’s MiFID II regulations came into force at the start of 2018 and market structure has also been impacted by the UK leaving the EU. 

“The added complexity is an opportunity,” he said. “The flexibility and the customization capabilities of our platform makes that easy for us to manage so we can ensure that all available liquidity is accessible across the globe, while older legacy systems have struggled.” 

He continued that EU regulation has an objective to improve transparency which levels the playing field between different venues and order types. Wald added. “We can use our experience in North America to bring a global trading infrastructure to EU markets.” 

The AMS comes equipped with seven core strategies, including a dark aggregator and a smart order router, which are all fully customizable. Wald comments that Arc, BMO’s flagship proprietary liquidity-seeking algorithm which is available to its institutional client base, has been customized for the European environment where liquidity is fragmented due to the number of venues and the lack of a consolidated tape. 

“Finding liquidity is a huge challenge in the European marketplace,” said Wald. “Our electronic trading offering is completely tuned for the European community.”

On-venue trading represented 77% of the total addressable liquidity in Europe in the first quarter of this year according to the ‘Equity Primary Markets and Trading Report’ from The Association for Financial Markets in Europe. AFME said volume traded off-venues, on systematic internalisers and purely over-the-counter, represent the remaining 23% of total addressable liquidity. 

#AFME published its Equity Primary Markets and Trading Report for Q1 '22. Key findings include equity capital raising on European exchanges declined 75% year on year in the 1st quarter '22 and IPO activity was exceptionally weak, with a 91% decline compared to the 1st quarter '21 pic.twitter.com/Lqwnwqt2bh

— AFME (@AFME_EU) April 27, 2022

“The proportion of on-venue trading relative to total addressable liquidity has increased in the course of the year,” added AFME. “This is likely due to market participants seeking immediacy of execution (as opposed to minimal price impact) during periods of heightened volatility.”

Differentiation 

In Europe there is a lack of standardization in measuring consolidated price formation and volume, so important benchmarks need to be accurately defined. BMO has evaluated each market data feed and normalized the trades and prints that they recorded in order to correctly define benchmarks such as participation rate. 

Wald said, “The biggest difference we offer our institutional clients is an incredibly systematic approach to electronic trading. We have the ability to be iterative, run a host of A/B tests, share those results with clients so they are engaged in how differently we view the market and trade where we have edge.”

He continued that BMO’s success for institutions and broker-dealers has also been driven by the ability to collaborate with clients and customize strategies to meet their trading objectives as well as the firm’s coverage model. Wald described the coverage model as very “high touch” as personnel based in London, Paris and Ireland are dedicated to a client so they understand the workflow and have tools to monitor strategies in real time. 

“Clients have a tremendous amount of confidence that we are a solution for them that others cannot be,” said Wald. “Our systematic approach, combined with the ability to be iterative and collaborative, sets us apart.”

As part of BMO’s growth strategy, its electronic trading launch in EMEA is intended to both attract new European-domiciled clients who trade European and North American securities and expand its services to existing clients who can now execute European equity trades through BMO.

In 12 months time, Wald said he would like to see the same trends in Europe that BMO has seen in the US and Canada – winning new clients, growing faster than competitors and demonstrating value through performance. 

“Our goal in Europe is to become a meaningful counterparty to the institutional and broker dealer community,” he said. “We think that the financial strength of the BMO organization together with our award winning technology and local expertise on the ground in Europe is the right approach.”