A few summary points I took from the Best Execution Europe 2009 event courtesy of Incisive Media that I attended yesterday morning.
They are also reviewing the necessary information provided to investors in OTCs, even if the investors qualify as "professional investors" under Mifid.
The COO of Majedie Asset Management said that "build" was "20th Century" and the IT should focus now on "assembly"
He added that if IT lead a procurement process he finds this tends to lead to more proprietary solutions than if business is managing it.
He summarised that business people should have the mandate to define inputs/outputs to a requirement and that IT were not qualified to do this.
The debate on this was pretty standard, but the guy from Majedie was at least controvertial in what he was saying, (including at one point that "investment management does not scale"). I assume he is trading simple products and as such is able to outsource more than the JPMorgan manager. My own slant is that more vendor products need to be designed to integrate easily with the IPR of a financial institution i.e. less black box.
He started by saying the Smart Order Routing (SOR) was like "Putting Humpty-Dumpty back together again" from all the sources of liquidity now available under Mifid.
Being no expert in SOR, I was excited (?) to learn a new term which was "finding Icebergs" – apparently an "Iceberg" is a large non-public ("dark") order being posted with a much smaller public trade order.
He said that market fragmentation will increase further but there will be less trading venues as the market consolidates.
A manager from Baader said that the German area market of Europe was not very sophisticated yet, with most German clients specifying exactly where the trade should be executed hence nullifying the need for SOR.
Deutsche Bank (DB) mentioned that having both US and EU operations had helped them get SOR in place for the EU quicker given their US experience.
DB said that a "tipping point" towards usage of SOR in the EU will occur when more than 20% of trading occurs away from the primary exchanges.
Neonet said that clearing and settlement costs were still a barrier to widescale SOR adoption.
IGNIS Asset Management said that SOR was a "high touch" service for them, requiring SOR vendors to be very responsive and client focussed. In selecting SOR vendors they were concerned with data privacy and also with having a real-time reporting facility to see how orders were being filled.
It is hard to look bad against traditional TCA measures such as VWAP if a stock is always rising or always falling, and this can hide a lack of performance and "value add"