Fireside Friday with… BTIG’s Stephen Ponzio

The TRADE sits down with head of electronic trading at BTIG, Stephen Ponzio, to discuss what’s front of mind when it comes to investing in e-trading talent, which characteristics are most prized on the desk, the importance of human-to-human interaction, and the firm’s future technological plans.

When it comes to investing in electronic trading talent, what are the key things you look out for? 

As BTIG electronic trading thinks about the future, we are prioritising developing junior talent with a diverse skill set and background including critical thinking, resourcefulness, and a strong work ethic. 

A good indicator for critical thinking is a robust education in science and mathematics. The latter teaches discipline, reasoning, and completeness. Moreover, a foundational grasp of statistics is also important as many of our methodologies rely on it to uncover truths through sampling and identify biases. 

Resourcefulness is often highly correlated with programming skills. People who love programming are usually very curious and have developed good engineering skills – they learn how to make things work. Solid programmers understand core principles like organisation, abstraction, and modularity which are also important attributes for traders. The best traders approach their work systematically – they focus on the process without getting distracted by idiosyncrasies in the results.   

BTIG is a firm that prizes innovation. We look for talent that can ace new technologies and tackle problems with agility, precision, foresight, and creativity.  

When it comes to sourcing better liquidity, how important is human-to-human interaction today? 

The sweet spot of high-touch trading is finding a natural cross, pairing up a client who wants to sell a large block of stock with another client who wants to buy it. That’s a win all around – both clients avoid the friction of trading in the market and save the associated costs. Trust, discretion and personal relationships are indispensable in such a transaction, so human traders will always do that better than any computer. If you are trying to move a large block, it makes sense to try your high-touch traders first. There are also occasions where a human trader is needed to navigate complex trades with multiple legs, involving derivatives, or with highly specialised requirements. 

However, there are instances where a trader is not able to find a contra. One alternative is for the trader to execute the order principally, where the broker takes the other side of the trade. This entails risk of course, and the price will include a premium to compensate for that risk. This is fair, but it’s not clear that the result is better than an algorithmic execution.  The high-touch handling also incurs a higher commission than an algorithm (low-touch). 

The remaining choice for the trader is to execute the order on an agency basis. For this, the trader will almost surely use an algorithm as a human cannot check all the trading venues as quickly and comprehensively as a computer can.  The trader may add value to that execution by making profitable decisions around when to execute the order and how aggressively. High-level decisions like those are best left to a human trader. They are, of course, very difficult to get right. 

Lower-level execution decisions – venue selection, order types, execution rate, tactics – are best left to the algorithm to determine. These decisions, which involve complex tradeoffs that often change over the lifetime of the order, are the sweet spot for algorithms. In this age of AI, that should not be a surprise and it seems to be gaining acceptance on the buyside with its recent trend toward increased automation and electronic execution. 

Given the distinct advantages of low- and high-touch trading, some clients would like to leverage both. At BTIG, we offer each client the option of allowing the high-touch trader to see its algorithm orders, in case the trader is able to find a contra. For these clients it is the best of both worlds—a high-quality algorithmic execution without forgoing the possibility of a natural cross. 

On the technology side, where is the focus for BTIG electronic trading at the moment? 

We are investing heavily in our technology. Our primary focus is on optimising algorithms for performance.  BTIG’s algorithms have semi-autonomous co-located modules for executing child orders. These constitute the heart of our ability to optimise at the lowest tactical level. For heavy-duty number crunching and analytics, we have a special system component that leverages the Julia programming language, which was created specifically for such tasks. 

For our front office, we have built a data warehouse system that supports analysis, reporting, and research. This system comprises best-in-class tools for data storage, manipulation, and visualisation. Additionally, we have invested in customised tools for real-time monitoring and control. 

«