Jack Miller Joins Bloomberg’s Larry Tabb for STA Chicago Virtual Fireside Chat
Baird’s Head of Global Execution Services Jack Miller recently sat down with Larry Tabb, head of market structure research at Bloomberg Intelligence, for a virtual fireside chat hosted by the Security Traders Association (STA) of Chicago. The wide-ranging discussion focused on the U.S. equity markets, with a focus on trends in institutional equity trading and market structure. Following are highlights form their discussion.
On Tabb’s recently released 2020 annual institutional equity trading study
Miller: “…to paraphrase the conclusions of the 2020 study, unsurprisingly 2020 really was an exceptional year and we saw a break in the momentum of some long-term trends. Saw an uptick in institutional volumes and commissions for the first time in a while, although looking forward it appears that the expectation is for things to come back and get in line with trends.”
On the impact of stimulus programs and a potential infrastructure package
Tabb: “You're going to have winners and losers, and it's not going to be like the Fed coming in and just pumping money into the global economy that gets filtered kind of evenly through. But when you start looking at specific programs to benefit specific individuals, I think you're going to wind up seeing the active side of the markets actually do well. And that was another interesting thing that we saw that we thought might back off—but it seems that it might keep up for maybe through the end of the year—that the differentiation between the top performers and the bottom performers [was] pretty significant in 2020.”
On the Tabb survey’s findings around what clients want most from their trading partners
Tabb: “We asked folks to kind of rank on a one to five basis which services if they were differentiated would you actually reallocate flow toward? And this year algos was first, but not far behind was high touch desk. And so a couple of years ago, the high touch desk was the most important factor. Now it's algos. But high touch is not that far behind. Folks are looking for services.”
On the difficulty of bringing increased volume to exchanges
Tabb: “That's the $64,000 question. Is how come we can't get more flow to the exchange? And I think it has to do with segmentation. I think the issue has to do with in effect, market makers, anybody who's quoting in a market wants to know who they're trading against. And to the extent that I can segment your flow from my flow from the other guy's flow I can kind of measure the sophistication of the flow that's on the other side of my trade. And I can provide a fair price, depending upon the channel that you're coming through. And I think if you think about it, there's equality and there's fairness. … they aren't the same.
And with everybody looking to try to do the best thing for their client—is the SEC falling asleep at the wheel, in terms of creating the best holistic market overall? And I'm not sure that they've done a great job at trying to figure that out, or they've been saying that ‘Well, retail has never had it so good. And algorithms have taken care of the institutions.’ And every person has a really good point. … it's a really difficult question to say, whose flow is better? And how do I manage it?”
Miller: “I think you're kind of pointing out the inescapable truth, that there's no free lunch, right? I mean the reality is that different market participants have different measures of what is the right outcome for them. It depends on what their trading objectives are and they're not always... There is conflict, there needs to be conflict, there has to be disagreement, or else no one would trade.”