 BUYSIDE PROFILE: Tom Stevenson, head of equity trading, EMEA at Fidelity International discusses the multi-faceted approach that is needed to trade in today’s unpredictable markets.
How are you empowering traders in terms of data and trading style?
From an execution perspective, our transaction cost analysis data is available to all of our investment teams, as well as our traders. We can interrogate the information using powerful visualisation software, which feeds into our decision making. Our traders are expected to utilise this data to help them better understand their flow, the brokers they trade with and look for ways to maximise performance. The visualisation element is important when focusing on trading data. We find it is helpful for portfolio managers and investment professionals, rather than just presenting reams of statistics. Having a dedicated trading analytics team, which sits within global portfolio construction & risk, gives us this ability, and they are a vital resource across our investment teams.
How do you represent the desk at a divisional and firm-wide level?
Fidelity International has a global trading team, consisting of equity, fixed income and FX desks, located in London, Dublin, Hong Kong, and Toronto. As part of the trading management team, I represent the desk in a variety of forums, from oversight and fair valuation committees, to change workstreams and investment team meetings. I also provide a regular market update to our sales teams, as well as frequent contributions to client meetings, where I demonstrate the value our trading teams bring to our investment processes. I also believe it is important to allow the traders within the team to represent the desk and the firm. Delegation is not only a great way to manage the valuable resource of time, but it also provides development opportunities for the team – for example presenting at investment team meetings or attending conferences.
In which ways do you represent the firm in the wider industry?
I am a member of the Investment Association Buyside Trading Committee, as well as a Plato Partnership board member. The trading industry is full of dedicated, intelligent professionals, and I value these engagements with my peers. Fidelity International has also been an active member of the Sustainable Trading initiative, and we have participation at a variety of industry events and conferences. I think it is important to try and utilise our platform to push for positive change in the industry – that can be regulatory, or technology focused, to issues concerning social mobility and wellbeing. We are proud of the diversity within our team, and feel it is important to celebrate this externally, as it is a huge part of our success as a group. As mentioned, I believe the team should have a platform to represent the business, and several of the traders in my team are regular panellists and thought leaders at trading conferences.
THE TRADING DESK
What is the balance between no-touch trading and low-touch trading?
There is a balance between automation that improves outcomes, and automation for its own sake. Our approach towards low-touch, is that while we want to reduce as many manual steps in the execution decision making process as we can, the ultimate choice is made by a trader. Although there is a robust oversight and feedback process, so we can measure the quality of our outcomes. Therefore, our focus has been working towards a ‘one-click’ process for our low-touch trades, rather than no-touch. This involves curating decision logic within both our order management system and execution management system, that generates a suggested path for an execution, based on our data and cost estimates.
This is an area of our business we are always looking to evolve; analysing different data inputs and technologies to not only maximise efficiency and scale, but importantly the outcomes for our clients. We are already successfully operating this model, giving us the ability to scale to increased order flows, while also freeing up trading resources to focus on more complex situations where traders can add value.
How are brokers maximising their value to you?
We work very closely with our brokers, right across the spectrum of our flow. Some of these relationships require more intensive collaboration due to the frequency or complexity of the instruments traded, but as a general approach we see our broker relationships as partnerships. For their part we see very strong engagement from the sellside community, be that through analysis of our systematic flow or block liquidity opportunities. We try to provide as much feedback and data as we reasonably can, so brokers understand their strengths and opportunities in relation to our flow. Those who use this feedback to better tailor their offering, tend to see better traction. For example we provide granular feedback on Indications Of Interest (IoIs) that we receive, while our analytics team and traders work closely with broker quants to improve performance of our electronic executions versus a variety of benchmarks.
How do you see automation evolving on the desk and in which tasks (pre-trade/trading strategy/routing/post-trade) do you see most efficacy?
It is about finding the optimum balance between scale and outcomes. As I said before, automating for the sake of it is not our plan. Where it makes sense from a best execution perspective we will embrace it, for example our ‘one-click’ routing of low-touch flow. I can envision the evolution of this type of semi-automation across a variety of our flows, such as exchange traded derivatives (ETDs), but we always have to consider the wider impact on our teams and infrastructure. The key is ensuring change programmes are connected and transparent, so that developments are not made in silos that have unintended impacts elsewhere.
TEAM AND SKILLS
How would you characterise the different generations of traders needed today?
I wouldn’t specifically look at the requirements from a generational perspective, more the skills that individuals and collectives have, and how they align with what we will need in the future. For example, as much as automation can help manage high volume/low complexity flows, there will always be a requirement for specialists who can add value around more complex situations. Much of this specialism comes with experience, but it’s not exclusive. The key is blending different skills and perspectives, to encourage diversity of thought and to ensure trading teams are geared up to embrace change, rather than resist it.
Which skills will be needed for the next generation of traders on your desk?
A common response to this would be programming skills, and while I don’t disagree, I think it is a bit more nuanced than that. From my perspective, the trader of tomorrow will need to be very comfortable handling and interrogating data, but equally communicating what it means to stakeholders and clients. While trading processes may optically become simpler through increased automation, the data that drives those decisions will become more complex. The ability to describe and visualise the impact of trading decisions will be key, in a future where cost focus will only become sharper. So, while technical skills such as coding and quantitative analysis will undoubtedly have their place, so too will more traditional trading skillsets – communication, innovation, and a desire to achieve the best for our clients.
How do you manage communication on the desk and between the desk and wider investment team?
We are always working on improving our communication technologies and the pandemic outlined the importance of this. For the desk, clear communication has always been one of the most important demands. Whether it is amongst ourselves or our stakeholders, providing clarity is a key risk mitigant, and this has been the case as long as trading desks have existed. The dynamic working arrangements that many desks now operate has only strengthened this requirement, and we are no different at Fidelity International.
With regards to the wider investment team, our traders sit amongst the portfolio managers and analysts in our office and speak throughout the day, but the ability to reach a portfolio manager quickly via tools such as MS Teams has really enhanced our workflow. Persistent channels allow for targeted information dissemination, and the ability to have ongoing dialogues around orders and stocks. While there is no substitute for a face-to-face conversation, our experience is that these communications tools have been additive to our relationships.
On a more strategic level we have a working group focusing on new ideas to further add value to the investment teams, focusing on ways to highlight the successes of the trading team in language investors understand, while seeking ways to enhance execution strategies. The team are regular contributors at investment team meetings, and we provide three daily market updates to over 500 colleagues, as well as ad hoc commentary on current themes.
What is the model for balancing quant/data skills and trading skills amongst your team?
The buyside has long understood the importance of integrating data into our workflows, and how this can help traders make more informed decisions, reducing the reliance on gut and intuition. As mentioned before, our traders work very closely with our trading analytics team to evaluate their executions and the impact of trading on our funds. Increasingly, we have seen traders asking for new data sets, for example to help them better target liquidity opportunities in less liquid stocks. It has been pleasing to see our trading teams embrace data academies and undertake training in applications that have not always been maximised by the desk. It is also common for our traders to engage with technology vendors and data providers to evaluate ways to improve our processes. Desktop interoperability is an interesting area for the industry to explore, as we look to arm our traders with analytical insights that can help them make successful decisions.
MARKET STRUCTURE
Which aspects of existing equity market structure create challenges for the trading team?
Monitoring for further regulatory divergence, and in some instances, convergence of the differing regulations takes time, and can create a heavy burden on buyside trading desks to provide feedback to the many consultations and working groups. Trading desks like to operate with maximum efficiency, but some market structure developments create operational challenges. In order to respect certain regulations, we have been required to implement additional controls and oversight.
How do you overcome those challenges?
To use the European Share Trading Obligation as an example, we worked closely with our technology and compliance teams, as well as our vendors and brokers to ensure the necessary FIX tags are passed to ensure rules are followed. In addition, our analytics and oversight teams produce data to ensure compliance by our brokers. For regulatory change in general it is an ongoing and evolving process but increasingly we look to leverage intelligence across the asset classes to ensure we maximise our resources and provide joined up feedback.
How are the post-Brexit differences between UK and EU market structure shaping up, and what are the possible effects on execution approaches?
From a trading perspective it is about ensuring our clients can access as much liquidity, at the most optimal levels, as possible. We therefore monitor regulatory change and contribute to consultations and working groups where required. Market structure in our region is now very complex and when we look at liquidity trends over the last decade, it is clear that European markets have contracted. I believe we should all be looking for ways to reduce friction in the marketplace and make our markets as attractive as possible for end investors.
Are there potential changes you can see which could optimise market structure?
There are a few things – the electronification of placings and initial public offerings (IPOs) would be a huge positive change and something that is hopefully realistic given innovation in the space. A real time, pre-trade consolidated tape would also help provide more accurate cost and liquidity analysis, which could be used across both trading and risk management teams. I also continue to believe a reduction in market hours could be beneficial to liquidity and client outcomes, as well as having a potential positive impact on diversity and wellbeing in the industry.
Tom Stevenson is head of equity trading, EMEA at Fidelity International, having joined the firm in 2006. He is responsible for the management of the London based desk, which trades all equity-based securities and derivatives across Europe, Middle East, and Africa. Tom has been leading the European trading team since 2018 and is a Director of the Plato Partnership. Prior to joining Fidelity, he held positions at two global investment banks.
