Industry experts were in disagreement at TradeTech today over whether new venue initiatives could resolve the buy-side’s difficulties in trading in blocks.
Neil Bond, head trader and partner at Ardevora Asset management, said there would be no silver bullet that can help return block trading to levels enjoyed 20 years ago.
“We won’t see a return to the old way of doing things because back then spreads were huge, commissions were huge and bank balance sheets were huge,” he said.
But Mike Bellaro, global head of trading at Deutsche Bank Asset Management, said he feels there can be a return to old-school block trading, citing an initiative he co-founded with other buy- and sell-side firms called Plato Partnership.
Plato aims to create a non-profit block trading network that will plough its revenues into market structure research to benefit its users.
Bellaro said his own experience shows block trading can be a driver of performance. “We’ve seen record performance because of block trading, we traded more blocks last year than we did in the previous five years.”
Christoph Hock, head of trading at Union Investment, another co-founder of Plato, saying: “Block trading will be critical in the years to come. I believe MiFID will be a catalyst for trading to split into two major disciplines, one focused on sophisticated block trading and the other focused on the low-touch side.”
Bond was more cynical about Plato’s prospects, saying similar initiatives have been launched in the past, but have failed to provide the levels of block trading the buy-side needs.
But others think the market will need multiple solutions to not only handle block trading but also other trading as well in the post-MiFID world. Christopher Marsh, head of AES Europe at Credit Suisse, said: “There will be numerous initiatives that will help the buy-side meet their best execution obligations, including the small-scale dark market, the lit market and block venues.”
Bellaro added that his firm has looked at ways to increase the incentive among its traders to seek out complex block trading opportunities, by directly linking them to their execution.
Bond also cited some major differences in the way he trades today compared with several years ago that can help to execute multiple days’ worth of flow in a single block.
“”We want to maintain a large broker list as this gives us more opportunity to find flow,” Bond said, “We usually trade in smaller names so we particularly focus on specialist brokers that we know trade in the names we are interested in.”
“We are also becoming more patient in the way we trade,” he added, “algos have worm down people’s patience.”