An innovative response
The low-volume equity trading environment presents new
opportunities to tailor products to firms looking to expand execution and cut
costs, according to Andrew Morgan, the recently promoted co-head of equities
trading for EMEA at Deutsche Bank.
The elevation of Morgan and co-head Stuart McGuire,
who comes from the global program trading and European cash equity single stock
business, is evidence of Deutsche’s focus the growth of electronic trading in
its equities business.
Morgan believes his appointment was largely a
recognition of his team’s effort in Autobahn, the bank's electronic platform,
which offers direct market access and a suite of algorithms and analytics.
“The tools and operational efficiencies we leveraged
in Autobahn are being migrated across the entire division. We wanted to bring a
number of the different execution groups together so client interaction was as
close as we could get it,” says Morgan.
Morgan, who joined Deutsche Bank in 2004 following a
six-year stint in Goldman Sachs’ equity division, believes the current low-volume
equity market climate has forced innovation from all areas of the industry.
“There are new business opportunities that have arisen
from challenges to the market, with the client wallet dropping, sending revenue
and profitability down for mid-tier brokers, who are looking at new services to
cut costs,” says Morgan, adding that businesses must convert any changes to
market structure or regulation into commercial opportunities to prosper.
Deutsche Bank this week released dbintegrate, an
equities trading platform built to address challenges of fragmented liquidity,
offering clients end-to-end execution, settlement and custody services, which
Morgan believes is evidence of Deutsche appealing to banks and brokers looking
to streamline trading activity.
From a buy-side trade execution perspective,
regulatory reform is vying with low-volumes as the chief concern among heads of
trading. As industry regulators in Europe look to apply stricter transparency
rules on dark pools, which could further squeeze liquidity and make block
crossing harder, Morgan thinks the proliferation of venues has a limit.
“Fragmentation is good to the extent you introduce
new, innovative features to the market. Clearly the growth in broker crossing
networks and the discretion we have in them to avoid certain participants has
been very valuable to market participants, but fragmentation for
fragmentation’s sake is useless,” says Morgan, adding that Deutsche Bank’s
SuperX dark pool had performed well throughout the year.
While the growth in use of dark pools is often seen as
a reaction to increased high-frequency trading (HFT) liquidity on the lit order
books, Morgan believes it should be seen more as a trade-off between the
quality and quantity of fill.
A central focus for all heads of trading will be
steering the course through a period of major regulatory change, which issues
including fragmentation, HFT and transparency top of mind for regulators.
Morgan believes recent moves to stem HFT trading will adversely affect
liquidity, and are part of a complex matrix regulators often have trouble
A draft of Europe-wide MiFID II regulation
has passed through the European Parliament’s Economic and Monetary Committee,
and the Council of the European Union will propose a version of the text before
the two legislative bodies agree o a final text with input from the European
Commission.The final document is expected to be implemented in 2014 at the
“We need thorough, evidence-based assessments of
what’s going on in our markets, like the Foresight report to avoid reactionary
regulation. The market is more complex than ever, and investment in technology
is an on-going requirement alongside everything that firms have to keep up with
from a regulatory point of view,” says Morgan.