Transparency is the Name of the Game


Give us transparency or give us death.

Not quite what Patrick Henry had in mind but if he were today’s buy-side trader it would be applicable. In a  panel discussion here at the WBR Equities Leaders Summit in Miami, Florida that asked “Which initiatives should buy-side traders prioritize and how will the pending transaction fee pilot impact market transparency and best execution in NMS stocks?” the answer was clear – transparency. The buy-side definitely wants as much transparency as it can get and embraces as many initiatives as it can in order to get more comprehensive and exhaustive data that helps shine a light on how its orders are processed and filled.

Ryan Larson, Head of Equity Trading, U.S, RBC Global Asset Management kicked off the session by explaining that the more data he receives the better. And for him, it was the modifications to Rule 606, more commonly known as the Order Routing Rule. His firm trades small- and mid-cap sticks and anything that can help maximize the alpha on strategy and promotes greater liquidity is king.

“Rule 606 changes were at the forefront of our list,” Larson told conference attendees. “Any future pilots or rule changes we would hope would also have reportable milestones that can assist us as well.”

Michael Warlan, Head of Global Trading, Third Avenue Management agreed that market and order handling transparency and initiatives were tops on his radar.

“The aggregation and transparency of data helps our conversations internally and with clients,” Larson said. “Any pilot or programs designed to help explain how we get there (a more transparent market) are relevant here. But how we get there remains up in the air.”

Justin Schack, Partner, Head of Market Structure, Rosenblatt Securities who followed Larson and Warlan said the issues of transparency and disclosure and the data they can produce are paramount to a better functioning marketplace. And it can also alleviate some of the conflict within the equities market as to who is to blame for the oft-heated debate regarding access fees or rebates – the exchanges? The brokers?

“Of all the issues before the market, disclosure issues are the most important,” he began. “There are a lot of asset managers – not just the big ones but the smaller ones – who need Rule 606-related data. Everyone can benefit from this data in order to assess whether or not one is getting sub-optimal results with their brokers and how orders are routed.”

Panel moderator Ari Burstein, President, Capital Markets Strategies asked that given the increased provision of Rule 606-related data and the requests for even more, “what do we do with all this data?” and how does the buy-side digest it all?

Third Avenue Management’s Warlan said the vast data influx was OK despite some concerns over over-saturation and the result cost attached to the larger amount of data coming into the firm.

“While we’ve seen our compliance and technology costs rise as a result of more data, we’ve also begun to rely on our sell-side counterparts and vendors to help us,” he said.”

RBC Global Asset Management’s Larson agreed, adding that the cooperation between the buy- and sell-side in managing and interpreting data could only help make his traders better informed and in turn, help keep RBC’s clients more informed and trading.

“It is imperative that the buy- and sell-side coordinate on the data issue, especially on the cost issues,” Rosenblatt’s Schack said. “Market forces need to be taken into account and that is something not many are talking about.”

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