(Updates with comment from CME spokesman, additional detail throughout.)
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BARCLAYS REVAMPS ALGOS AND ROUTER
By John D'Antona Jr,
Keep it simple. That is the mantra at Barclays Capital as it emerges from a yearlong revamp of its electronic trading products and desk. And with this new simplicity, the bank hopes to increase profits and raise its profile in the equities trading business.
Barclays is employing a three-pronged strategy to achieve its goal of moving up from the middle of the pack and into the top echelon of broker-dealers, say Bill Bell, head of electronic distribution Americas, and Bill White, head of electronic trading. The strategy is to deploy its smart order router globally, grow its dark pool Barclays LX and simplify its algo offerings.
"We wanted to make our team global-take the solid U.S. experience that our clients were getting and make it universal," Bell said."Simple is better. Consistency across global regions is good," White added. To him, simplicity is what the buyside wants. Clients appreciate a coordinated and streamlined strategy, which he thinks is key. And when clients find success using the firm's products, White thinks they'll trade with Barclays more often.
Bell acknowledges the firm was a late entrant in the electronic revolution. But he thinks there is a window of opportunity for Barclays with its revamped offerings. Barclays gained a U.S. presence when it took over Lehman Brothers after it collapsed in the fall of 2008.
According to Tabb Group's Equity Trading 2011-12 report, Barclays has climbed to 10th place among top algo providers, with clients mentioning them 19 percent of the time. In the 2010 report, Barclays was ranked 13th, with clients mentioning them 10 percent of the time.
Bell, a 15-year veteran, began at Lehman in 1993 as a sales trader on the over-the-counter desk. He did stints on the Nasdaq and listed desks, covering long-onlys and hedge funds. Around 2001, he became a team leader and managed cash, program and vol traders.
He told Traders Magazine that top flight electronic products were something the desk was missing when he was promoted to his current position. He took on the origination sales team in 2008 and in 2010 was named head of Americas electronic distribution, incorporating the origination sales, sales trading and the broker-dealer teams. Bell knew the high-touch business and what his team lacked.
"When I looked at the desk back then, I knew that to be successful in electronic trading, we needed to build a complete coverage model that replicated the high-touch desk," Bell said. "The goal was to build a high-touch desk for a low-touch outcome."
To do this, Bell went right to the firm's sales graduate training program, selected fresh talent and taught them the business from the ground up. He also added some senior industry professionals to round out the team. After the revamp in 2010, Bell needed electronic products to offer clients. Enter White. A career trader, White started at the Chicago Board Options Exchange in the early '90s. He traded multiple options products on the floor and built his own electronic options trading platform. Armed with a trading background and a quantitative and IT-focused mind, he got busy.
"I've always been involved in the IT side of trading," White said. "The firm had traditionally managed the electronic business from a very aggressive sales standpoint, and putting a trader in charge was unique. I know the trading side. I know HFT. I know how to execute in this market structure."
After arriving one year ago, his first task was to build the firm's smart order router-the SOR. It would be the centerpiece of the desk's electronic offering.
The SOR, which is now complete and actively routing orders in the U.S. and Europe, is slated for introduction in Asia this year. It is dynamic, not static, making changes in routing decisions based on real-time data inputs. It ranks venues at the symbol level, based on historical and real-time fill data, and then routes orders to lit and dark venues simultaneously, based on probability of fill, not rebate.
White also took aim at the firm's algorithmic offerings. While not paring back on the 10 algos Barclays offers, he did go back and re-engineer each of them.
With an upgraded SOR and algos, White and Bell have turned their focus to the Barclays LX dark pool. Crossing trades internally helps the clients save money and helps the firm collect on both sides of the trade, a win-win.
According to Rosenblatt Securities' December report, the firm's dark pool garners about 0.96 percent of consolidated volume, up 16.7 percent year over year. In contrast, Credit Suisse's Crossfinder gets 1.8 percent of consolidated volume. White hopes to double the venue's market share in the next year by globally using the SOR and algos.
"We'd like to cross more internally in the dark pool-that's where we can control market costs the best," White said.
In the end, Bell and White know they have their work cut out for them.
"We want to attack the market," White said. "I'm working in the weeds with IT to develop the product all the time."
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