09.11.2014
By Terry Flanagan

Fragmentation Alters Stock, Bond Trading

The steady increase in the number of exchanges and the need to route orders based upon numerous pricing permutations has changed the dynamics of how buy-side firms interact with the sell side. In particular, the buy side is using technology as a way to leapfrog the chasm between traditional floor-based trading and the electronic execution venues that have all but replaced them.

“The way that a lot of firms have addressed this fragmentation is with technology,” said Jason Lichten, director of equities and listed derivatives trading strategies at Wolverine Execution Services. “It’s being able to understand the complexities associated with the way exchanges operate, whether they use direct feeds or the SIP, how orders are handled in dark pools and the order types across both, and then using that knowledge to build routing strategies so that when you do go out to execute, you can have a better feel for what’s going to happen when your order hits an exchange.”

Prior to joining WEX, Lichten was vice president of electronic trading strategy at RBC, where as a member of RBC’s Market Structure team, he was responsible for helping to grow RBC’s electronic trading platform and smart-order router, THOR.

“My responsibility when I was at RBC was to be an extension of the sales team and to go out and educate the buy side on the complexities of the U.S .equity market structure, which is as fragmented, if not more fragmented, than it was in 2010,” he said. “I spent the last few years speaking to a variety of buy-side firms about the complexities of U.S. equity markets and how there were predatory strategies that could potentially mitigate the opportunity for best execution.”

Electronic trading continues to grow across the fixed income sector as well. iTB Holdings, a software provider for institutional fixed income traders, has launched an upgraded interface for iTBconnect, a platform that connects market participants to electronic fixed income trading venues. The new interface will empower iTBconnect users to display bids/offers and inventory to electronic fixed income trading venues to improve fill rates, optimize execution prices and maximize distribution, the company said.

“Institutional traders need additional ways to trade corporate bonds due to the ongoing transition of the fixed income landscape,” said Michael Chuang, founder and CEO of iTB Holdings, in a release. “Low market volatility has saddled fixed income traders with high fixed costs and declining revenues.”

Featured image via Dollar Photo Club

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