Eric Stockland, head of quantitative strategy at BMO Capital Markets, said electronic stock trading is in a “golden age” as sites compete for institutional business on performance rather than fees.
Stockland told Markets Media that BMO Capital Markets trades very disproportionately to the overall market share because the company picks the sites where it has the best trading results, giving electronic sites more incentive to compete. .
“We are delighted with the change,” he added. “It’s a golden age to be in e-commerce because sites want our business and they want to earn it on performance, not fee.”
He noted Cboe Global Markets’ innovation in equity trading, including the rollout of periodic auctions in the United States this year and the creation of order types such as the discretionary mid-term order and the quote exhaustion protection order.
Stockland also highlighted new alternative trading systems in the United States such as OneChronos and PureStream, in which BMO is a minority investor.
“We are excited about the OneChronos ATS because their expressive bidding model is really interesting,” he added. “We start with simple trades and run tests to assess the quality of execution before using expressive offers.”
BMO Capital Markets executed its first trades on the PureStream ATS platform in the United States and Canada. PureStream offers a very different model for matching client interests based on deal rate rather than price.
Sites have also turned to innovation by focusing on performance rather than fees, as the US Securities and Exchange Commission has highlighted the disclosure of execution quality and best execution.
SEC Chairman Gary Gensler asked staff to consider recommending that the regulator come up with its own best execution rule for stocks and other securities.
He said in a speech: “In addition, brokers and investors could benefit from more detail on the procedural standards that brokers must follow when handling and executing client orders.”
As a result, Stockland said brokers who have the ability to take a systematic approach to e-commerce and experiment across locations and order types will continue to differentiate their e-offering as they compete on performance. overall.
The increased volatility is also causing buyers to take a closer look at how they are trading as the stakes are higher, according to Stockland. He continued that the increased volatility also offers a chance to deepen relationships.
“When the markets are chaotic, you find out how important a client you are to a broker and vice versa,” Stockland said. “I think there’s a real chance to differentiate yourself in a crisis because if you show up when customers really need you, that resonates for a long time.”
The advice Stockland would give buyers in difficult market conditions is to take the time to collaborate and be willing to experiment.
“Collaboration and experimentation require a certain vulnerability and a willingness to question your assumptions in which you form a partnership,” he added. “It takes time, it’s tough and noisy, but the gains can be amazing and linger for a long time.”
In May this year, BMO Capital Markets launched algorithmic trading of European stocks. Stockland said trade frictions in the region, such as the lack of a consolidated band and extreme fragmentation, are opportunities for the Canadian company to differentiate itself by helping its customers overcome these issues.
“We believe that what differentiates BMO in the US and Canadian markets is transferable to other market structure jurisdictions, including those in EMEA,” Stockland added. “BMO will overweight venues and order types that provide a trading advantage, we combine this with excellent client coverage and a robust empirical process to measure and improve trading results. “
Stockland argued that another differentiator in e-commerce is that BMO Capital Markets is committed to innovation, which is evident in its acquisition of Clearpool, a technology company that has been building greenfield algos since the founding of the company. In addition to the acquisition, BMO Capital Markets’ expansion into EMEA is a testament to its ability to retain and hire a team of talented developers who continue to refine the offering in North America and build a mature platform for the market microstructure of the EMEA region.
“We align with an agile methodology, so we’re very fast and accurate in delivering regular system updates,” he said.
Stockland said business was booming as BMO Capital Markets’ electronic trading business steadily welcomed new clients, although the company does not publicly disclose electronic trading volumes.
“We’ve been on fire lately as an e-franchise because differentiation, execution quality, coverage and collaboration are heightened during spikes in volatility,” he said. “I think customers vote with their feet.”
However, he described the first-trade win as the tee shot. It’s a slow process to prove ability to execute that involves first month of data, first quarter of data, and continuous improvement. It then takes years to develop a relationship, so revenue, sales, and volume expectations are muted in the first 12 months, but should grow over many years as the business continues to shake up, to cover, innovate and perform.
“We’re pumping a ton of investment into high and low touch trading,” Stockland said. “There is an aura of optimism in the office, in the field and with our colleagues and clients, because finding performance gains is fun.”