There probably aren’t that many people in the UK that can claim to have four consecutive generations of heritage in the trading world, but Invesco’s head trader for EMEA equities, David Miller, is one such example.
The most recent recipient of The TRADE’s prestigious buy-side lifetime achievement award has spent the better part of 40 years on trading’s front lines, taking up the Miller family mantle, and has been an up close and personal witness to unprecedented levels of operational and cultural change during that time.
“My father was a broker, my grandfather was a broker and my great-grandfather was a broker. There is one person I know of who has traded with all four generations; he was a broker while I was a jobber, and he was jobber when the other three were walking around on the exchange floor with carnations. He died a few years ago, but I would challenge anybody to claim to have dealt with all four generations of Millers.”
Miller began his career in the early 1980’s as a stock jobber with Smith Brothers amid the hustle and bustle of the London Stock Exchange floor, those market makers that held shares on their own books, creating market liquidity by buying and selling securities and matching investor orders through their brokers.
He was part of that cadre of pre-Big Bang stock jobbing firms that made their name on the exchange floor throughout the first half of the decade before the seismic deregulation of the UK trading landscape in 1986.
Smith Brothers, later known as Smith New Court, was acquired by US investment bank Merrill Lynch in 1995 for $900 million and Miller departed the firm after the move away from the trading floor to the screen-filled offices, predominately trading smaller companies. After 12 years with the business, Miller took on a completely new challenge with an upstart exchange that aimed to take on the very venue where he cut his teeth in trading.
Markets old and new
While there have been a number of misguided and aborted attempts to acquire or merge with the London Stock Exchange over the last 25 years, there has never been a UK-based challenger that has seriously threatened the historic institution’s position.
That was the aim of Tradepoint Investment Exchange, an electronic, pan-European venue that offered investors access to UK blue chip shares, led by a group of ex-LSE employees, including the chief executive officer, Michael Waller-Bridge, father of the BAFTA and Emmy-award winning actress, Phoebe Waller-Bridge. “She was probably about three years old when all of this took place, but she has gone on to better things as well,” Miller jokes.
“I was market controller of Tradepoint for most of its life,” he explains. “It was kept alive by the establishment to encourage order book trading, it was open to all market participants, although it was predominantly a sell-side tool. We didn’t do very much but over the five years the exchange went from purely quote-driven to an order-driven marketplace. We were based in Covent Garden, which was slightly left-of-field as well, but it worked. It worked very well.”
Eventually Tradepoint was absorbed into the Swiss Stock Exchange and rebranded to Virt-x, but by that time Miller had already left the firm to take up residence in Henley-on-Thames with Invesco. His time among the trading venues before the turn of the millennium provides a unique perspective on the contemporary landscape.
While market fragmentation is not a new phenomenon by any means, the sheer number of venues that have come to market as part of the twin drivers of electronification and regulatory change present the asset management community with new challenges to contend with.
“The fact that we have seen this proliferation of trading venues and styles has meant that we’ve had to keep very much on the forefront of technology, more than anything else. So fragmentation is one of the biggest challenges, and that’s alongside the ever-evolving regulatory backdrop, with MiFID II and other regulations coming in, and what may happen with Brexit,” Miller says.
“It is something that we need to cope with, alongside an increased number of orders, so we have become more automated. The buy-side trader has to become more involved in the electronic side from a liquidity capture point of view. Price discovery isn’t as straightforward as it used to be.”
Miller opines that the proliferation of trading venues has now most likely peaked, but that simply means that buy-side trading desks now have to make the most of the skills and tools that are available to them.
The Invesco desk in the UK is comprised of Miller and a small team of what he describes as “generalists”, or traders with their own set of specialisations all interacting with the available range algos and high-touch desks, meaning that the desk itself can be flexible enough to adapt to whatever strategy is required.
Art meets science
The requisite skillset for a modern buy-side trader is directly informed by the changes in market structure and the way in which trading venues have evolved, a “mix of art and science” that Miller has observed first-hand throughout his career.
“It has changed almost beyond recognition; the buy-side trader has become greatly empowered over the last 20 years,” he states. “We are seeing an evolving skillset. I don’t want to say it’s a different skillset, because there are some stocks or situations that don’t lend themselves to electronic trading whereas there are some that do. Part of the skill is to identify what strategy to use in what situation.
“Part of that comes from experience, some if it comes from pre- and post-trade data. It’s honestly a mix. You can’t just have a technologist and you can’t just have a high-touch trader, because those two are morphing closer and closer.”
A cohesive blend of skills, market expertise and the ability to follow your instincts are now required for a successful trading desk and Miller states that the buy-side trader has become more of a price maker than a price taker, in line with the market evolution away from the historic quote-driven model towards an order-driven approach.
The buy-side’s involvement in the price making process has also been accentuated by the growing importance of and opportunities created by technology. Miller also highlights the “gut feeling” that traders have always relied on that is now being increasingly quantified, for both internal performance and external compliance requirements in the search for best execution.
“What we are now doing is recording our rationale behind the trading decisions, as much as we can,” he explains. “It’s not proprietary, but every trade is tagged, and we believe we are ahead of the curve in doing this. Every time we do a trade there will be a reason recorded for it.
“There may be many reasons, but we’re now applying that to our systems to rewrite the tape, if you like, to produce a more efficient and useful timeline. The pre-trade expected impact cost is tagged and the post-trade rationale is also tagged. We can produce quite an accurate picture of what we have done and use that result going forward.”
A big part of that “science” element of the toolkit is the correct use and understanding of pre- and post-trade data that is supplied by the firm’s Atlanta-based team of quantitative analysts, which Miller terms as a “great asset” to the firm.
“Pre-trade analysis is obviously very important to work out a strategy and we can always learn from our post-trade data,” he explains. “We can run certain scenarios on the data we’ve got and we have a very adept team in Atlanta whose job it is to analyse our data; the pre-trade, in-trade, post-trade data to come up with suggestions and, in some cases, intelligent strategies to guide our flow in future.”
Miller also highlights the experience and expertise that the desk possesses, blended with the individual skillsets that each member brings to the team – the electronic guy, the older guy, the other market maker, as he puts it – forming a tactical unit for trading decisions based on the strategic input of the fund managers which is adaptable to the more irrational nature of the markets which will require a range of trading decisions to be made.
Price maker
Miller joined Invesco after his six-year stint with Tradepoint at its UK headquarters in Henley-on-Thames offices when the firm was still operating as Perpetual in 2001. At that time, Miller recalls, the firm didn’t have any traders, with a team of fund managers doing their own dealing. The change occurred following the takeover by Invesco, which added a Henley-based trading desk to the mix.
“The fund managers never had, dare I say, the luxury of having their own dedicated trader in the past and I’d never had the luxury of ever working so closely with the fund managers,” he recalls. “So, the two us, it was a nervous sort of positioning, which lasted a little while until we understood each other better.”
The experience gained through his time on the London Stock Exchange floor and with the launch of Tradepoint, particularly on the price making side, proved invaluable during those formative years on the Invesco desk, according to Miller. The mindset of being a price maker, as opposed to a price taker, of being central to and in control of that process, proved to be a “very good grounding” both at the time and since, to be able to advise and develop the right strategy.
“You can only really make a price if you know as much information as possible: The way to be a good trader is to see everything, to know what everybody else is doing without them knowing what you’re doing,” he says.
Now the relationship between the traders and fund managers is that much closer, both due to a necessity imposed by different operating conditions and an evolution of the structure of the firm, but Miller says that the two entities are still “very distinctive areas.”
“There may be certain strategies or price points that the fund managers are more interested in or there may be certain sectors they are more interested in” Miller explains. “We are the eyes and ears of the market. When it comes down to it, we’re not just traders – although 90% of what we do is trading – but a certain amount of what we do provides market colour and some advice, and we do feed into the investment process.”
Of course, the trading desk in Henley itself has grown and evolved during the intervening years, operating within a global infrastructure, and Miller now acts as the head trader of a team of six traders, reporting to the firm’s head of trading for EMEA equities and Henley fixed income, Paul Squires.
The UK desk covers EMEA across a range of equity classes, although primarily in equities, working in tandem with its US and APAC colleagues, backed up by the team of quants that Miller describes as “a Godsend”. The US operation was recently bolstered by the acquisition of MassMutual-subsidiary OppenheimerFunds for $5.7bn in October 2018, which expanded the firm’s overall assets under management to around $1.2 trillion.
The regional Invesco trading teams are siloed from each other in the sense of their geographic trading responsibilities, operating in a “three-pronged” approach that makes full use of its quantitative team which Miller says is utilised to ever-greater degrees: “We’re working on ever-more in-depth reports, post-trade reports, which we analyse as a team; that can only serve to make the whole operation more efficient,” he says. “By staying ahead of the curve we are improving outcomes for clients. That’s the high, overarching intention. We want to do the best trades, we want to continue to be successful, in terms of trading quality analysis, as we can.”
But no firm on the buy-side can achieve best execution and the highest quality trades without its counterparties on the sell-side, and Miller has observed a huge shift in the relationship between the two sides of the trading world throughout his career, having been on both sides of that equation. He observes that dynamic as having become more of a partnership than previously, with Invesco working with an extensive list of investment banks and brokers, and certain players making their balance sheets available to the firm.
As he acknowledges, Miller doesn’t change job roles very often, having worked for just three organisations across his entire career in the industry, however he says there has been a great deal of variety throughout and each move felt like it was a progressive step with a reason behind it.
From the open-cry trading floor of the capital in the early 1980’s through an upstart 90’s exchange that sought to introduce new and disruptive ideas to the marketplace, to the more sedate setting of Oxfordshire with Invesco, Miller says he wouldn’t have done it any differently, summarising the best part of a 40-year career in finance in typically understated fashion.
“There are certain trading decisions I would have made differently, or I might have gone to that firm rather than that firm, but I think looking back at the whole 38 years, I think the progression has been pretty satisfactory. I don’t have to worry about commuting anymore, so it’s a pleasure to go to London when I do, which is rare,” before concluding with a smile, and perhaps only half-jokingly, that he only travels to London now to collect awards.