CEO CHAT: Seth Merrin, Liquidnet


Seth Merrin has seen the future…and it is high touch. Virtual high touch that is.

Seth Merrin, Liquidnet

Liquidnet, the global institutional trading network, has just released the launch of Best Ex Replay, the newest addition to the Liquidnet Virtual High Touch suite powered by data and analytics from OTAS Technologies. It is here, in the Virtual High Touch suite, where Chief Executive Seth Merrin sees the future of the firm and trading.

So, what is Virtual High Touch exactly?

To hear Merrin tell it, as he sat down with Traders Magazine Editor John D’Antona Jr, is to hear more about a philosophy rather than an individual product or products. Merrin wants to continue to empower buy-side traders by getting into their hands the latest and most advanced technology that frees them up to do what they do best – trade. Time spent doing compliance reports and other back office tasks only makes the trader more inefficient and that is not good. Traders are meant to trade, he said.

“What we’ve been working on actually for the last, three or four years that came to fruition in the last year and a half, is a whole new class of trading technology. We call it Virtual High Touch and it stems from a bunch of things going on in the marketplace,” Merrin began. “Historically,  high-touch traders have advised their customers on how to best utilize their products and source liquidity, but this role has since been marginalized. In fact, all over the world our members have told us that, in many cases, they don’t even know who their coverage is at this point. This is unfortunate. We believe that the context a high touch trader provides is a very valuable service that has been provided to our customers, not by us necessarily, but by the larger banks that have the resources and capabilities to do it.”

Merrin continued to explain that Liquidnet’s solution, Virtual High Touch, gives both portfolio managers and traders more intelligence about how their orders are being handled and executed. With the reduction of high-touch sales traders around Wall Street when compared to a decade ago, the notion of calling up coverage and finding liquidity via telephony has been greatly reduced despite the need for it now.

“Like everything else that we do at Liquidnet, we’ve leveraged technology to create a much better outcome, a much better solution, we believe,” Merrin said. “We’ve identified the things that are really absolutely necessary and critical for a trader, and there are a couple of things.”

First, he said, is that traders, especially under MiFID II and all the regulations that are going on around the world, have told Liquidnet that they spend 50% of their time searching for liquidity. But the other 50% of that time is wasted on administrative and compliance-related work.

“Traders need to focus on trading. Our mission is to leverage technology to streamline as much of the compliance and administrative work as possible,” Merrin told Traders Magazine. “we want to make their search for liquidity that much more efficient and give them time back so that they can focus on adding as much value to their firms and to their funds as they possibly can.”

Enter Virtual High-Touch.

To hear Merrin explain it, Virtual High Touch works by splitting the world into two separate components. One is intelligently sourcing liquidity via either algorithms and or by keeping orders within Liquidnet’s own pool. This helps to minimize leakage and adverse section, he argued. The second facet of VHT is trader intelligence and arming traders with the right tools and technology like Best Ex Replay and other analytics powered by OTAS Technologies.

“We want to do everything that we can so that the order can stay upstairs as long as possible. So, obviously, it starts with our own liquidity pool, and then we want to unite the entire marketplace to allow our Members safe and effective access to brokers, exchanges, and other external sources of liquidity.”

A unique element of sourcing liquidity in the VHT suite is using a tool Liquidnet has dubbed Targeted Invitations. Think of Targeted Invitations as an IOI with a firm committed order that specifically promises that a trade will be executed should the invitation be accepted.

“With Targeted Invitations we put the power back into the trader’s hands. For example, traders can configure Targeted Invitations to  hit five contras maximum only if they had relative size of their order in the last three days,” Merrin said. “Orders are not sprayed out to the entire trading universe, rather Liquidnet can help find where the invitation should go and do it automatically.”

On average, only three recipients will get a targeted invitation to trade.

“So now a trader knows there’s an interested contra out there and can go to the portfolio manager, get an order back, and get a trade done,” Merrin said. “As long as it’s (the targeted invitation) up on their screen, there’s a committed order there ready to execute.”

And of course, this reinforces Liquidnet’s reputation as a block trading venue. According to Merrin, the block is not dead, but it might be hiding in some remote corner of the world (or in a portfolio manager’s head) and needs to be brought into the Liquidnet ecosystem.

“There are blocks all over the market,” Merrin said, “and they have to be centralized. So, if everyone knows that there’s one source where you can actually execute those blocks, well, they can come here. Brokers can execute their blocks here, exchanges are providing liquidity too and the buy side is coming into our pool from all over the world. So, we are centralizing all that institutional equity. We are the wholesale market.”

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