Our Insights from this year's TradeTech in Paris

For 15 years, TradeTech has been a networking platform that promotes the exchange of leading brokers in solving their biggest challenges. With interactive elements, round table discussions, workshops and live debates, new insights are gained and trends identified. The breaks are ideal for networking and building valuable relationships. Dozens of technology providers and brokers will present their solutions to interested customers on the buy side. The most discussed topics at the meeting point for all Trade Tech enthusiasts included: post-MiFID II landscape, Big Data and how to use it efficiently, challenges on the buy and sell side, ELPs, SIs (Systematic Internalizers), TCA usage, regulatory issues, and finally the latest developments in the tradetech world. Interestingly enough, the blockchain topic was hardly mentioned.

What are our key-take-aways?

Post-MiFID II developments:

• Industry continues to move towards no touch (including Algos) and super touch (very complex / sensitive). Given the new regulatory and pricing environment, one touch is increasingly hard to justify since no one is willing to pay for it. The challenge will be on how to handle one touch automatically but with a clear notice to the client, how the orders are handled (otherwise, the broker faces legal risks).
• Fragmentation of flow continues but fragmentation for the sake or regulation does not make sense whilst fragmentation with competition benefits the client in our view.
  
  

Buy side challenges:

• Know your broker is getting more important, therefore, the sell-side should be as transparent as possible in how they handle orders, access venues etc. Vontobel has a solution with its TB Cockpit which is an excellent and powerful tool for the client. There is a heavy reliance on brokers to help out.
• Client uncertainties how ELPs differ from each other: Broker Toxicity Checks and Analysis builds trust. VT SOR and Algos incorporating and sourcing liquidities from CRBs / ELPs is the answer, and our flow is as natural as possible.
• Understanding CRBs is going to be a hot topic, it is vital how they unwind liquidity and what the benefits for the buy side are.
• Buy side public poll at the TradeTech: Does MiFID II Improve execution quality? The attendees’ answers: 31% yes, 41% no, 28% undecided
  
  

Broker challenges:

• Every broker will need to prepare for constant change. Balance sheet usage can be key for execution to lower costs. Educating client on topics like Algo, TCA and Big Data is key.
• Our Vontobel Execution Platform is built in a sustainable way with agile technology behind as the cost battle will continue. We know that automation and flow optimized fee routing will be critical for both the buy and sell side. Non-charged execution possibilities (like SIs) are key for the survival of many Brokers. Sell side struggles using outsourced opportunities. E.g. Broker Market automation can be dramatically increased by using trusted brokers. Higher STP rates and smarter PreTrade Checks & Rules will further increase automation.
• Trading in closing auctions is expensive and will lead to further discussions on how to address these costs. Earlier pre-arranged blocks (price improvement waiver) using RfQs or alternative crossings like Aquis Closing auctions may help to solve this problem.
• Public poll at the TradeTech and the attendees’ answers: 66% of buy side says transparency is crucial, 62% is execution quality, 9% proof of investing in technology, 4% demonstration of compliance and governance, only 2% ask for more customized Algos.
  
  

TCA & Big Data:

• Interpretation and usage of Big Data is a big challenge for everyone. Vontobels TCA platform helps visualizing and drawing conclusions. Our TCA platform visualizes and helps understanding benchmarks. ESMA may consider regulating benchmarks and reference prices which could be a benefit for the client in order to compare the execution quality of different brokers.
• A basic set of data may be offered for free, sophisticated analyzing tools may be charged in the future by different providers. Benchmarking and price forming data is not regulated or commonly understood.
• ESMA represents the opinion that basic post trade data should be freely available, added or derived data can be charged: Vontobels TCA platform provides a variety of raw and derived benchmarks.