ARTIFICIALLY INTELLIGENT EXECUTION.
Alfred Eskandar, CEO at Portware, a FactSet Company, discusses the pressures to enhance the trading desk and how investment processes are impacting the development and integration of execution management systems.
How would you characterise the trading environment over the last 18 months?
From a trader’s perspective it’s been filled with regulatory challenges, political uncertainty and anxiety. We saw the impact of the Brexit vote, the US election was really a circus, and traders are still wrapping their heads around MiFID II. So traders in the US and Europe were really dealt a tough hand to play.
What sort of technologies are you putting R&D into right now?
In 2012 we made an acquisition and bought machine learning capabilities into the EMS; there is constant investment in that process. By adding A.I. capabilities, we have created the “Thinking” EMS. In our latest version of Portware Enterprise (v6.4) every single order on the blotter will have been analysed, vetted and comes to the trader with a recommended trading strategy, a recommended trade horizon, and a recommended algo type selection, enabling the trader to apply their skill more effectively by leveraging A.I. capabilities. It is essentially making the bionic trading desk.
FX has been the fastest growing asset class for us. We are in one of the biggest phases for Portware in terms of client onboarding for FX, with a combination of new super-large, global, multi-asset and super-complex, heavily automated accounts executing through Portware.
What is the goal of the bionic trading desk?
The key part is helping traders have faster, more informed conversations or make faster, more informed decisions. That’s the responsibility of a trading platform. We are not here to decide how you do your business. We are here to help recommend and help make what you want to do faster, easier and more accurate.
How does that tally with the pressure on the asset management community right now?
An active manager needs performance first and foremost, so that includes everything that the active manager does to outperform, to win more mandates and to raise assets under management. As a result we have seen firms, certainly in the last four years, go through rigorous cost cutting. It has created demand for efficiency, greater usage of technology and more scale.
We have spent a lot of time and money in building information and analytical tools to drive that process. The counterpart to that is regulatory reporting. It’s one of the most valuable things that we’ve built. For clients to be MiFID compliant today and have the comfort of being able to demonstrate best execution capabilities by asset class on demand is enormous.
How do those two demands balance out?
It’s a tough balancing act – because institutions do need to invest in both areas. The trend that we see is that institutions will skew their technology spend towards performance enhancement tools once they feel comfortable enough that they have achieved meaningful efficiencies in their trading operations.
Do you see the value that the EMS provides is recognised, based on those characteristics?
The problem with the EMS space in general is that the majority of them are free. So how do you value something that is free? As we are not a broker sponsored system, we have no trading capabilities in-house. We live or die by the quality of our software and our customer service for large multi-asset clients by being transparent and professional. Our entire business has to live up to a very high standard.
There are politics around connectivity and trading platforms, is that being addressed?
We have arguably the most flexible and open API in the industry, and in fact that’s one of the reasons why we get selected. We are truly an open and collaborative platform and work just as easily with client’s proprietary systems, as well as third parties.
Vendors shouldn’t limit our customers from getting access to third party systems. There are certainly closed systems out there who do have those obstacles, and I think the world and the markets are changing too much too fast for anyone to prevent clients from chasing opportunities that they would otherwise want.
In terms of other technologies such as transaction cost analysis tools, how does an EMS support that wider ecosystem?
A good EMS speaks to many systems in an organisation – not just the OMS. When Portware gets called an EMS, there is so much more behind it. There are middle office elements, there are back office elements, there is portfolio management driven work. Customers see more than a trading platform. They are essentially plugging in other parts of their company, from risk models, to alpha models, to proprietary systems. We don’t put any constraints on what they can do.
As a platform provider what trends are you identifying on the increasingly mature buyside trading desks?
Reporting and monitoring capabilities have been the most requested client proprietary services in the last 18 months. It’s telling us that our clients’ business is under a microscope and they need help in proving and demonstrating best practices to their stakeholders. Reporting is almost a justification of why you invest with a particular asset manager.
What is the top challenge you face in the FX business?
Once you get the connectivity in place then you are done, to a certain extent, because a multi-dealer electronic FX platform is a hub. The biggest challenge was getting all quote streams in place, connecting dealers in emerging markets, and so on, but that’s behind us. Now we find challenges in dealing with some of the market centres that have front ends they don’t want to see replaced. I get it, I understand their competitive stance, and it is one of our top challenges in FX today.
Does equities have any of the same challenges?
No, those barriers were torn down a while ago. Equities have been fully electronic for some time now as that market structure has been transformed over the past 15 years. Many innovations flourished: Block crossing via blotter scrapes, electronic auction systems, ECNs, exchanges, so the next area of differentiation will be A.I. tools. A.I. will pave the path to squeeze out excess performance in an efficient market.
Fixed income is perhaps the most challenged asset class, what is the number one challenge there?
It’s a really big asset class with an enormous number of issues. It’s very difficult to find a single electronic solution that can solve all the nuances of so many OTC instruments. We see the EMS playing a huge role in aggregating the different workflows for each instrument and with increased trade automation as the market structure for fixed income evolves. The next challenge is getting all the participants in the ecosystem to accept ‘co-opetition’.
We’ll eventually get there the same way we overcame it with FX, and that is by reaching a critical mass of client demand. You can’t stand in the way of innovation forever, ultimately innovation will win and right now there are technical advancements that are not utilised because of policies. Remove the policies, enjoy the advancement.
How will A.I. be implemented in equities and when do you expect it to get rolled out across other instruments?
We have A.I. capabilities for other asset classes, the goal is to extend what we have proven to work in US equities across the globe, to introduce it, incrementally, into other asset classes. I like to have the first iteration of something be very successful, then learn from it, and make the second iteration even better. We are not going to try to apply it to everything all at once. We are just going to find a beachhead and demonstrate to clients that it is equally as successful here in the next asset class as it was in equities, and the next, and so on.
Appointed CEO of Portware, LLC., in 2012, Alfred Eskandar leads one of the financial industry’s leading developers of broker-neutral, automated trading solutions for global equities, futures, options and FX. In 2013, Alfred was named as one of the prestigious Institutional Investor Trading Tech 40, a global ranking of the most prominent innovators and managers in capital markets.
Prior to Portware (recently acquired by FactSet Research Systems Inc.), Alfred ran the US trading business for Liquidnet, where he was an executive team member and founding employee. During his 11 year tenure he held multiple leadership roles and led the acquisition of Miletus Trading, LLC, a leading quantitative and program trading broker-dealer, serving as president and chief executive officer during its integration.
Before that Alfred served as the head of business development for the operations, trading and technology division of Thompson Financial’s Investment Marketing Group. He holds a BBA in Finance and Economics from Baruch College.