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MiFID Reloaded: Using Advanced Analytics to Support Best Execution

Posted in Thought Leadership on
Wednesday, March 8, 2017
by Adam De Rose

When I was an equities dealer on the buy-side for a short while, some seven years ago, I thought I knew what I was doing. I watched the bids and the offers in the order book closely, hoping I could learn to read them like Keanu Reeves could read The Matrix. I watched out for news on the names I was trading and any others of interest to my portfolio managers, and I had screens full of charts and morning reports from brokers and watch lists and chat rooms and alerts and even a system built by my talented colleague that would calculate intraday P&L and bark whenever a stop-loss was hit and we needed to exit. We called it Watchdog.

Every day I digested as much information as I could, and I ingested at least seven cups of coffee as I did it. I tried to be the best trader I could be, and best execution was always front and centre in my mind. And all that was great, but I returned home every day mentally exhausted from the sheer, monumental effort of trying to be everywhere at once.

Seven years on, at the cusp of MIFID II implementation and with the higher and wider standards of best execution it demands, I find myself casting my mind back and wondering whether, even with all that effort, I would have fallen short of the new obligations. I clearly wasn't being efficient, and that inefficiency must have cost some alpha along the way.

Thankfully things have moved on a little bit since those days, and now there’s a better way to keep on top of orders, react to the information that matters, and to boost productivity and performance.

Imagine a platform that watches everything you, as an experienced trader, would watch, alerts you to any abnormal, statistically significant behaviour anywhere in your trading universe, and tells you about it.

Imagine being able to glance at a picture of coloured symbols, distilled from seven data providers and 170,000 data checks across 15,000 global equities, and being able to interpret the information and its implications for your trading, in an instant.

Imagine being able to watch market behaviour through a lens combining old, tried and tested techniques, with new, innovative ones, that together mute the cacophony and present information clearly. So clearly in fact, that if you want you can have it presented in plain English.

Last year, Eze Software decided to work with a unique company called OTAS Technologies, to bring their exceptional tools to our clients by embedding OTAS apps and data within the Eze EMS.

OTAS Technologies has spent the last five years working with portfolio managers, traders and data scientists to turn imagination into reality, and when we intertwine their tools with the advanced trading tools and in-trade analytics already native to the Eze EMS, the result is an exceptional arsenal of weaponry with which to combat the rigours of the best execution process.

From almost any EMS component, you can launch and link any OTAS application and embed it into your EMS layout. Without swiveling or rekeying, OTAS Core Summary and Microstructure apps react to the securities you're trading, uncovering hidden signals and subtle or extreme changes to market conditions. Set an order blotter or a watchlist to serve as the instrument universe for OTAS’s real-time Alerts and Intraday Screener, and let the system draw your attention to abnormalities that you can choose to take advantage of. With a single click on an order row, you can launch pre-trade transaction cost analysis that explains the risk profile of your order and solves for the optimum trading schedule based on your risk appetite. Then, OTAS’s Lingo technology puts it all in English so you can read it like an instruction manual.

Critically, having the Eze EMS tightly interwoven with OTAS apps and data allows you to react to signals quickly, giving you a potent tool with which to influence and assist in improving execution quality. And let’s not forget, thanks to our true EMS/OMS integration, you can do all of this while benefitting from the security of full compliance protection, as explained in Andy Pheifer’s recent blog post.

This all sounds great, you say, but do I really need it? Isn’t MiFID II just about post-trade TCA reporting?

It is, and it isn’t. When we look at the demands of best execution in the new paradigm, it is becoming more and more apparent that post-trade transaction cost analysis is no longer enough. Make no mistake, post-trade analysis is critically important and, as we will no doubt cover in later blog posts, can undoubtedly uncover leakage in the execution process that once plugged can float a sinking ship. But best execution is not an end-state, it is an endeavour. It is about effective process, insightful monitoring and ongoing management attention on getting the best outcome. It is a mindset to be adopted throughout the entire life-cycle of a trade, including before and during, when you can exploit real-time market intelligence to impact your results. This mindset, I would argue strongly, is where regulatory pressure is trying to direct us.

Say what you like, you can’t watch 50 order books at the same time, and you can’t pay close attention to the performance of each order and the conditions they're trading in. You certainly can’t give each and every order the due care and attention that best execution demands. Not even Keanu could do that.

So do yourself a favour. Take the red pill, ask us for a demo, and we’ll show you just how deep the rabbit hole gets.

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Adam De Rose, Eze Software Group

Adam De Rose

Adam De Rose, Associate Director, Product Management, joined Eze Software Group in January 2014 and is now a Product Manager focusing on MiFID II and Best Execution. Previously, he was responsible for selling Eze EMS to hedge funds and asset managers in Europe, and prior to that was a Sales Engineer across the wider Eze Software Investment Suite. Prior to Eze Software, Adam worked at TradingScreen on U.K. Hedge Fund EMS sales from 2012 to 2014. In 2009, Adam was part of a team that launched Javelin Capital, a long-short equity hedge fund, where he was responsible for technology platform selection during launch and subsequently became head of trading.  

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