Vision for the Future
There seems to be a new trend in the area of crossing networks toward pooling liquidity. For example, ITG has gotten together with Pipeline and NYFIX Millennium to pool their liquidity in their dark server. I think this is a good thing for everyone. Also, I think you're going to see, in the next 6 to 8 months, a lot more algorithms come out. Here at Westpeak we would like to see some of these algorithms get a little more sophisticated. More-dynamic algos, which incorporate a market proxy such as the S&P 500 as an input, would be welcomed.
Fun Facts
Tell us something interesting that few people know about your professional or personal background.
I am an avid outdoorsman, and I just recently took the day off to climb the big ascent of The Diamond, which is a 1,000-foot rock face on Longs Peak in Rocky Mountain National Park. We started hiking in the dark at 2 in the morning and got to the base of the climb at 5:30 a.m. We started climbing (ropes, harnesses, protective gear) at 6 a.m. and got to the summit 12 hours later. Then we had to rappel and hike back down. It was a 20-hour day. It was intense.
INTERNATIONAL TRADING
In which international markets do you trade?
We trade in the 20 developed markets that make up the MSCI EAFE Index.
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Westpeak Global Advisors
470 Walnut Street
Boulder, CO 80302
Assets under management:
$3.3 billion.
Fund(s) for which you trade:
Westpeak Capital Growth, IXIS Value Fund, IXIS Westpeak U.S. Equities Index Plus and IXIS Westpeak U.S. Small-Cap Growth.
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Types of products traded:
U.S. and non-U.S. equities primarily. We also do some futures trading and some currency trading. Our quantitative equities strategies include large-cap enhanced, core and growth; small-cap core and growth, all-cap core; EAFE core, EASEA core, MSCI Europe Enhanced and MSCI Japan Enhanced.
Daily volume in equities:
More than 1 million shares.
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Structure of trading department:
There are three traders, and all three of us are cross trained across all the markets that we trade in. We don't have any special traders that just do night trading. We feel that it's better for the firm as a whole if everyone is capable of handling orders in any market on any given day, because you never know when someone is going to be out and you have to fill in.
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Previous Positions:
I worked at BT Alex Brown as an OTC market maker. Pretty much my whole career has been spent between Alex Brown and Westpeak.
Education:
I have a B.S. in business administration from the University of Colorado. I'm also a CFA charter holder.
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TECHNOLOGY
Technology used to trade:
Equities: Our OMS provider is Macgregor. We have used several different EMSs. ITG Triton is our main platform. Instinet Newport and Bloomberg Tradebook are also trading platforms that we use. Our market data is provided by Bloomberg and the crossing networks we use are ITG's Dark Server and Liquidnet.
FX: We do trade FX and we use a State Street Global product called FX Connect to trade our currency electronically. We trade the associated currencies of all the countries that make up the MSCI EAFE Index.
Vice President of Technology
Ken Risdon
How do you work with your CIO when it comes to getting new technology on the trading desk?
The traders for the trading technology and the portfolio managers for portfolio management technology will evaluate the various products, based on their own needs in terms of functionality and the types of synergies they are looking for in their technology. Then once we make the first pass on that technology, it will then be evaluated by the technology group to see if it will integrate with the systems that we currently have or see that it's a viable solution from a technological standpoint. And then negotiations are handled as a team, and ultimately our CEO will have the final say.
LOOKING AHEAD
What trends/regulations/issues do you think will transform your role as a trader?
We just had a ruling from the SEC on soft dollars, which said that OMSs are no longer going to be allowed to do the soft dollar. That is going to affect smaller shops that don't have a huge trading budget. They are now going to have to find a way to hard dollar their OMSs. The buy side needs to be aware of any changes that might take place that are going to have a financial impact on the bottom line. Going forward, there could be additional pressure put on the regulatory body to get rid of soft dollars altogether.
What do you hope technology can change going forward to make your role easier?
There is going to be an interesting thing going on with respect to OMSs and EMSs. Recently, you saw ITG buying Macgregor and just recently, BNY buying Eze Castle, so there seems to be this new trend of OMSs and EMSs combining. Now, you haven't seen the combined products put forth yet, but I can only imagine the direction it is going is to offer combined products. And to be honest with you, I like the direction that things are going.
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PORTFOLIO MANAGEMENT
Describe your relationship with your portfolio managers
Orders are loaded on the desk electronically. At that point, the traders assume responsibility for the implementation of the trade. We maintain two-way communication at all times with the portfolio managers if we need to communicate any kind of special instructions - as far as settlement or specific details related to a specific security. The traders are asked to be the eyes and the ears as far as those orders go. And part of our job is to keep the portfolio managers up to speed on what's going on.
ALGORITHMS
Types of algorithms used to trade:
It kind of runs the gamut. We run a little bit of everything. We use VWAP at times and implemenation shortfall at others. We use volume-participation with and liquidity-seeking algos with small-cap names.
We also use specialist-avoidance algorithms when trading on the NYSE at times. So what kind of strategy we use depends on the type of name we are trading and the strategy.
Which algorithms do you use most often?
Certain types of algorithms inure themselves to certain types of names. When we are trading large-cap baskets, VWAP or implementation shortfall might be a good strategy; but neither of those algorithms works very well in the small-cap area. When we are trading small-cap stocks, liquidity-seeking or volume-participation algorithms are more appropriate.
Do you use algorithms for equities only?
Yes.
Which brokers' algorithms do you use?
It runs the gamut. Probably the top five algorithms we use as far as different brokers go would be ITG, Goldman, Jeffries, Credit Suisse and Bloomberg.
Do you build your own algorithms?
No, but I wouldn't rule it out in the future.
How do you rate your brokers and determine which broker will get your order flow?
Our brokers are evaluated vis-a-vis a post-trade evaluation process. We analyze brokers with a third-party tool as well as a proprietary in-house tool. The application enables us to measure our brokers using standard or customized benchmarks. However, we felt a need to develop an in-house tool to complement a third-party tool because we wanted to look at some things that weren't available in a third-party tool. We have a ranking system, and what we are basically looking for is a trend with respect to how our brokers handle our orders so that one bad score on our first rate evaluation doesn't cause a broker to lose all future order flow. Everyone has a bad day from time to time. What we are looking for is to see how our brokers handle different types of orders.
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Interview by Leslie Kramer, Contributing Writer
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