Vision for the Future
Global real-time market data analytical capability will be an important capability to develop. It is very sophisticated and very tricky to deal with given the tremendous frequency of it. That will include measuring not every quote and every trade, but also where to look for security across the entire universe that you are interested in. And what goes hand in hand with that will be the ability to develop derived, statistical data from that information. So the ability to do that within cross-market and asset classes is a part of the next wave of evolution.
Fun Facts
Tell us something interesting that few people know about your professional or personal background.
I have been playing percussion since I was in elementary school. I played in a classic rock band in college, and I also played in Japan while I was there. When I moved back to the Bay area we put together a BGI band. We played at our corporate event to provide some entertainment for our colleagues.
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Barclays Global Investors
45 Fremont Street
San Francisco, CA 94105
Assets under management:
$1.6 trillion.
Fund(s) for which you trade:
There are different strategies that we trade for. The first is the iShares brand of exchange-traded funds. We also have all of our institutional index funds, which cover a broad range of global indices and specialized strategies for clients.
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We have the Global Active Quantitative Equities Funds, a portfolio of global equity long and short, which is one of our hedge fund offerings. And the last is our Commodities Index Replication offering.
Types of products traded:
U.S. equities, equity derivatives, international equities (including emerging markets), commodities, fixed-income futures and exchange-traded funds.
Daily volume in equities:
More than $1.25 billion.
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Structure of trading department:
BGI has a team of 15 full-time traders. Each of those traders is assigned to a primary investment strategy. We have a few other managers on the team here. The first is Ananth Madhavan, who heads up the trading research group globally, and that team is heavily involved in the deployment of our active trading technology and also in building out the infrastructure to do pre- and post-trade analytics in-house.
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Then we have Richard Tsai, whose primary responsibility is for our U.S. market-neutral trading as well as supervising our global electronic-trading and currency-trading initiatives.
Previous Positions:
Morgan Stanley, Equity Derivatives (1993-1999).
Education:
I have a B.S. in accounting from Binghamton University (State University of N.Y.), class of 1993.
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TECHNOLOGY
Technology used to trade equities:
Equities: BGI proprietary OMS, Flextrade EMS.
Fixed income: BGI proprietary OMS.
FX: BGI proprietary OMS, Flextrade EMS.
Chief Information Officer:
Derek Stein
How do you work with your CIO when it comes to getting new technology on the trading desk?
Trading technologies are evaluated for quality to achieve the various desired tasks that we are after. So we look for functionality, stability and scalability. As a result of that, all technology investments are reviewed by BGI's Global Trading Program Board, which was established a few years ago to ensure our trading infrastructure and platform has a global quality consistency and fiscal prudence. The CIO and the CTO will both be involved in making major trading systems decisions and will actively participate in a host of different discussions around ensuring that it is achieving all the various requirements that we have. They also actively participate in build-versus-buy discussions, which happen at all stages.
LOOKING AHEAD
What trends/regulations/issues do you think will transform your role as a trader?
Global exchange consolidation will likely affect the way markets trade. It's unclear how that will evolve. We are making every effort to be on top of developments, through extensive trading and market structure research.
What do you hope technology can change to make your role easier?
The thing that will continue to be accrued will be the ability of the technology to provide scale, but more so on the analytics, particularly in the risk analytical arena. So that is an area where we think we will spend resources and invest time in understanding and more fully developing it. As we move to the vision of the future around more real-time business analysis, the ability on a large-scale basis to handle that is going to be an area where we will continue to see investments in technology.
INTERNATIONAL TRADING
In which international markets do you trade?
We have global investment operations in the U.K., Canada, Tokyo and Australia. In some cases we have employed trading in the local region. It depends on the fund and type of regulatory structure, but I'd say we have managed investments in most global equity markets, including some of the very emerging markets. For example, we would trade in Egypt and Russian local shares.
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PORTFOLIO MANAGEMENT
Describe your relationship with your portfolio managers.
It's constantly evolving. We continually try to make it deeper and better. The only thing that has changed is that we have evolved the tools and the reporting and the frequency and quality of the interactions that we have.
ALGORITHMS
Types of algorithms used to trade:
VWAP, TWAP, QMOC (market-on-close tactic), implementation shortfall, dark book cross-finders, and floaters that float with the market and absorb liquidity.
Which algorithms do you use most often?
It depends on strategy, but, in general, algorithmic tactic selection is dynamic and highly dependent on the market conditions, investment objectives and trading horizon.
Do you use algorithms for equities only?
Currently, BGI employs algorithms mostly for cash equities globally. However, we are in the process of working with our algorithmic providers to modify the tools to allow them to be effective in trading listed futures (equities and bonds) and currencies.
Which brokers' algorithms do you use?
We use a broad portfolio of broker-provided algorithms in the U.S.
Do you build your own algorithms?
There are some limited streams of work in development to build algorithms in-house at BGI, particularly where the effective implementation requires access to liquidity that individual broker-dealers will not have. An example of that would be dark pool aggregators that source liquidity from multiple broker-dealers that compete with each other. For example, Goldman Sachs might not want Credit Suisse to have access to its internalization engines. And, therefore, it comes upon us in order to efficiently source best execution to directly access disposable liquidity in an automated fashion. That is one reason we would do it. The other reason we may do it is that the use of the algorithms requires parameter setting and input that are proprietary to BGI - for example, our alpha scores that we use, which essentially describe the excess return profile of a security. Tools such as that on the longer-term horizon may be things we might be interested in building out internally.
How do you rate your brokers and determine which broker will get your order flow? Broker performance is measured quantitatively across a broad number of BGI proprietary metrics. So their performance can be objectively and dramatically measured on a periodic schedule, whether that is daily, monthly or annually. And we look for areas where dealers can exhibit a relatively competitive advantage to others. Single-stock and portfolio capital schematic capabilities are important factors as well as the broker-dealer's ability to leverage internal order flow; and, of course, innovation and execution services as well.
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Interview by Leslie Kramer, Contributing Writer
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