5 min read

Update on Trading Analytics

Update on Trading Analytics

With Alastair Clarke, European Equity Trader, Capital Group

Briefly discuss your professional background. What is your role and responsibilities at Capital Group?

I have been a European Equity Trader at Capital Group for over 16 years, having previously worked on the sell side for eight years at ABN and JP Morgan. In addition to my primary trading functions over the last four years, I have researched, designed and delivered an in-house execution product for all our global equity traders: Trading Analytics Platform for Execution (TAPE). I continue to manage its evolution.

Alastair Clarke, Capital Group

How would you characterize the current state of trading analytics? Has it evolved in a way that better helps traders do their jobs?

I am a firm believer that if you have the right analytics in front of you - aiding you to make faster, more informed and validated decisions, be it pre- or intra-trade - this can only benefit the trading process. Every small incremental ‘win’ built up over time is without doubt a benefit. I maintain that if you have a clean and validated UX to support trader intuition and strategy, you have better outcomes. 

With regards to the state or availability of analytic offerings currently, there is no better time to explore the wide range of products out there. Large, off-the-shelf systems or products from smaller individual providers are both options. The first is more straightforward and faster to market; the latter is a more bespoke tool refined to your workflow. 

I have found the growth of the incubator hubs and offerings to be exponential, as businesses are now turning to these hubs with their desires/projects/requirements and asking/sourcing the providers within the hubs to match. The increased usage of open architecture and cloud computing has enabled these accelerators to source the best of a broad menu, leading to a democratized marketplace and giving control back to the user.  

What are traders’ ‘pain points’ with regard to trading analytics and how are traders managing?

A key obstacle to overcome is that every single trader is an individual, with their own trading style. The problem to solve is to have an agile system that can be flexible enough to meet all demands, and one that ultimately enables different traders to arrive at the same decision or strategy no matter how they use the system. 

Start basic, with the core requirements that may seem ordinary at first and expand as requests for added tools appear. And they do appear quickly as engagement is taken up. Focus on the objectives of the user rather than being led by the solution. 

Having an initial more simplistic start will enable the back-end developers time to understand how the system functions, how quickly you can add APIs, data and complexity, as one huge pain point is performance. A slow system is quickly discarded from a trader’s workflow. A ‘pain point’ for me is too much information too soon. 

What are the issues regarding integration / interoperability of desktop applications?

I don’t believe this is as prominent an issue as it once was. It has become apparent that many larger, off-the-shelf solutions have a huge amount of interoperability. Market leaders have worked particularly hard to invest time and onboard partners to offer as broad a system as possible. Whilst that might not allow those providers key selling points, it homogenises the solutions for clients, allowing clients to develop and grow without fear that they must change provider and start again.

 In terms of integration, we’ve found that if one can link a web-based container of APIs to one OMS/EMS, it is straightforward to create that pathway. There has never been an easier time to integrate. Alongside our internal data we have one external third party integrated into TAPE. As we onboard new products and/or market dynamics change, I see no reason why that number couldn’t increase if required.  

How does trading analytics support the specific stages of the trading lifecycle (pre-trade, execution, TCA)? Which stage(s) are better supported and which are supported less well? 

When you talk trading life cycle, the most important aspect is that all the stages are linked in an aggregated platform. This includes having your holdings information one click away from your pre-trade analytics, and the pre-trade analytics initially simplified to time/cost and cost vs percentage of volume, progressing to suggestive broker selection, broker posting activity and strategy adoption. This can all be embedded into your broker order ticket, along with charts and market data if you so wish.

Your live executions page is where you’ll integrate most of your analytics, so you need to clearly see your individual executions, venue analysis, peer group performance, spread capture and volume participation. Much of the live execution data can be obtained, but you must decide how to present it to your trading group and then automate the communication and distribution of it to portfolio managers and analysts.  

Historically, pre-trade initiatives and accuracy have been challenging, but as we obtain more trading data, this is becoming easier. It is one area of continued work in progress as markets change, volatility increases, and market participants change. Post-trade data is one of the better supported areas of the trading cycle. The challenge comes in taking that data and translating it to suggest best in class at the start of an execution. But I believe this is where the true value lies. 

What initiatives has Capital Group undertaken with regard to optimizing trading analytics?   

A significant step that we took was to identify that a there was a need for a role within trading to research, create, bridge internal departments, and explore avenues of trading technology. 

Analytics became the solution, but identifying gaps in the trading process, packaging information better, and ultimately expecting high trader performance was key. 

TAPE has evolved from that initial step, growing from two trader panels to its current form of 10 panels. As a feedback loop, we’re constantly monitoring click data from the traders’ day to day activities. This has been key in ‘Next Step TAPE Evolution’.

What is the future of trading analytics, ie what might be key themes pertaining to this topic a few years from now? 

For me, the individual trading analytics experience should expand to a broader audience within the investment team. I believe we are nearing the sweet spot of TAPE in its current guise, and so I’m spending more of my time bringing aspects of TAPE to our Investment Group. 

At Capital we’ve found that you achieve a far better trading and execution outcome for the Investment Group when the initial conversation around an order is in greater depth. I am currently working on integrating a ‘Trader Tile’ into our Investment Group Research website. When a portfolio manager or analyst looks at a stock, not only can they see the internal research and analyst recommendations, but also Stock Positioning, Peer Performance, Chart Technicals with an interactive Trade Discovery API driven by the size of the order. So instead of “what do you think about stock X?” the conversation will develop into “I see a large short position, it’s underperformed vs its peers, do you see further evidence of shorting currently? Can I take advantage of this? It’s trading on it’s technical lows and volume, suggests a two-week trade“. This is a very different level of engagement that will lead to a better joint view and execution outcome. 

Externally, I see a focus towards ‘Design Thinking, Jobs to be Done’ with a strong slant to the user experience. I see it being delivered not only by mainstream offerings, but also by the broker community as technology dictates detailed microstructure APIs that drill down to the users demands. This is an area that has not been tapped into historically. I’m pleased we can now start to untangle broader products and fine tune them to our specific needs. Within this framework comes the opportunity to test. I see an increase in these experimentation sites, where testing and data can be recorded, giving the user the real experience and owning whether to proceed or not. This is a huge benefit.

The ever-changing evolution still excites me and will continue to be additive to the marketplace. 

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