Convergex’s Noll Talks Trading and Liquidity (Part 1)
Markets Media interviewed Eric Noll, president and chief executive officer of agency broker Convergex, on June 9. This is the first of two parts.
Can you describe the thought processes behind the development of the recently announced “Blueprint for Growth” initiative, and how Convergex plans to respond to the changing market dynamics?
The Blueprint for Growth reiterates Convergex’s commitment to how we consistently strive to align our goals with those of our clients to help them do their jobs better. It was important to highlight our strengths and where we can add value to our customers’ investment decisions. We’re an agency focused brokerage – which means we do not trade against our customer’s flow, we do not do investment banking, and we do not do research. Our focus is to provide agency executions for our clients. As for Convergex’s day-to-day operations, the emphasis has been on what we call foundation and innovation. The fundamental foundation offers high customer service while also providing our clients with a whole variety of services that they need from high touch to algorithms, electronic to international to sell side services, dark pool, soft dollar arrangements, and prime brokerage, and then marrying that with technology and innovation.
When it comes to the buy-side sourcing liquidity, are they still looking for a block trade? Or is a little more nuanced in that the buy-side wants fewer trades but in larger size?
I view this in three ways. The search for liquidity, at least among the customers that I meet with, is one of the paramount things that they think about every day. Everyone has somewhat of a different or ideal mix of what liquidity means to them. For some, it’s a clean cross or block liquidity of real size. For other people, it is accessing liquidity without exposing their order to the marketplace in a way that generates information leakage. For others, and I think this is one of the distinctive things that we’ve been able to provide to clients, along with the first two, is this idea of, “we want the liquidity to be unique.”
What do you mean by unique?
A lot of times, investors are going the same direction, at the same time, in the same name. Trades get crowded and often times, particularly in the search for liquidity, this means that everybody is calling the same person about the same thing at the same time. I think one of the unique things about our customer base is that it is not the same as you might see somewhere else. We still have the same large institutional plans but we have over 3000 clients. They range from Midwest trust banks, to smaller hedge funds to different kinds of vehicles. The liquidity that our clients are seeing is often uncorrelated to the liquidity that other firms are showing them. That has value for them. We have this deep well of customers who are actually quite active and quite interesting but aren’t as well covered by the rest of the street and aren’t as well known.
So Convergex is tapping liquidity from firms the bulge bracket is no longer serving?
Yes. It could be that maybe some of these firms don’t generate enough commissions to garner bulge coverage. In some instances, it’s a geographical issue. They’re located in a place where they just don’t have anyone that covers that territory. Those are customers that we service and that really helps resonate with our client base.
Describe Convergex’s trading model. Is it a mix between cash trading and algorithmic strategies? Or is the future just electronic?
I think at one point there was a trend that said, “We’re going to the machines, we’re going to the algos.” We have a huge investment in the algo business. We have algos in 30 different countries, a whole suite of algos here in the U.S. and in the UK that we use for European executions. European algo business has grown for Convergex about 20% year over year, so algo trading continues to flourish, continues to grow and I think this growth trend will continue for us.
But remember, trading is complicated — it’s not just about algos. When you’re trying to provide the best execution to your clients and they’re searching for liquidity, sometimes having a person to deal with is meaningful to them. While our high touch team is comprised of classic high touch sale traders, they’re also, to a large extent, hybrid traders as well. Sometimes that involves people managing the order more directly and sometimes it’s purely electronic.
Is trading still a people business?
Yes, I agree with that, but I’ll add that while trading is a people business, it also has to be married with smart technology so that those two elements go hand in hand. Not only is trading a people’s business it is also a relationship business.
More on Convergex:
- Convergex Adds Block Trading, Anti-Gaming to ‘Dark’ Algo
- Convergex ETF Direct Platform Executes Over $1 Billion in Notional Value Since Its Inception
- Convergex Launches Its “Blueprint For Growth”
Feature image by Eyematrix/Adobe Stock
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