A WINDOW OF OPPORTUNITY.
Laurent Albert, global head of trading at Natixis Asset Management Finance, explains how regulation is opening new avenues of business.
Can you please explain what NAM Finance is and when it was created?
We were created in 2009 to service the internal clients of Groupe BPCE, which is the second largest banking group in France and parent of Natixis, the corporate, investment and financial services group. We cover all asset classes such as equities, fixed income and derivatives but also developed a securities lending business.
What impact do you think MiFID II will have on the industry?
We see MiFID II as having a huge ‘big bang’ effect particularly in fixed income. Historically, many of the portfolio managers in this asset class focused on road shows, external meetings and trading but did not have to prove best execution. This will now change, and like equities, there will be much more focus on execution capabilities. This will not be that easy because it is happening at a time when liquidity in fixed income assets such as investment grade or corporate bonds is difficult to access. Banks are not as active participants because of the tighter leverage capital ratios under Basel III.
I also think, as in equities, there will be greater emphasis on transparency, transaction cost analysis (TCA) as well as the cost of different services in fixed income. This will lead to an unbundling of advisory services from execution. Banks will begin to rationalise their services due to cost pressures because it will become more difficult to deliver the same advice at the same level. However, we see MiFID, as well as other regulations, as a great opportunity for us to expand our business outside of BPCE.
Can you please explain why?
At the moment, we service the internal clients of BPCE but in the fourth quarter of last year we had conversations with a number of small to medium sized asset managers. Fixed income requires totally different infrastructure, IT and processes and it will be expensive for these clients to build their own systems for accessing liquidity, producing reports and building tools for transaction cost analysis. The analysis for TCA has to be more granular because there are no benchmarks in fixed income. We have built the models and can offer a wide range of services such as access to global markets, advisory and execution as well as TCA and reporting to meet the new regulations.
Focusing on electronic trading, can you tell me the driver behind TradeCross, which was launched last year by TradingScreen and a group of 15 European, long-only asset managers including Natixis?
TradeCross offers another way for the buyside to access liquidity. There have been a number of initiatives in this space just as we have seen in equities. One of the differences is that TradeCross helps address the problems many larger asset managers have with size and market impact. Firms can anonymously trade blocks but still keep their sellside relationships and STP (straight through processing) solutions which are very important. The platform has the capacity to link with internal order management systems and provides much wider global coverage than some other venues. It includes a huge part of the credit universe ranging from investment grade, emerging markets, high yield, government and supranational bonds. We believe TradeCross will be successful if it can capture around 10% to 15% of these global markets.
How do you see these electronic trading platforms developing?
I think they will develop along the same lines as electronic trading in equities. It took time, but in 2010 we saw brokers using direct market access and algos. Today, they account for around 80% of equity transactions. I don’t think we will see the end though of the classic request for quote system, but I do think dealing desks will choose two to three solutions. One of the biggest challenges is to ensure that you get the right price because there is no benchmark. Also, although I think these developments will make markets more efficient and improve liquidity, to date there is no actual proof that this is the case. I am sure that will change in the future.
What impact do you think Brexit will have on trading in London?
I personally think it will have a negative impact in the markets because liquidity is already difficult due to the Basel III capital ratios. Overall they are 3% but in the UK they are higher at 4%. If the public decided to leave the European Union, then the government could decide to apply this higher rate to non-domestic financial institutions. If that is the case, then I think we will see firms leave London and the market that will be most impacted will be repo, which is one of the main drivers of liquidity.
Looking ahead what do you see as your biggest challenges?
To be honest, I think all the challenges are down to regulation. For us it is to optimise the new environment and offer clients an integrated offering to help them meet the new requirements.
Laurent Albert started his career in 1997 with CIAL (Strasbourg) in a treasury role covering cash, swaps and repo products. He moved two years later to ETC/Pollak to work as a broker for the government bond market. In 2001 he joined IXIS Asset Management, which merged with Natixis Asset Management in 2007. He joined as a broker and then became responsible for all fixed income at NAM. In 2009, Albert became global head of trading at Natixis Asset Management Finance, which includes equity, fixed income and securities lending.