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Trading Technology

10:29 PM
Katherine Heires
Katherine Heires
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Buy-Side Traders Go Global

As global trading takes off, large, medium and small buy-side shops take divergent approaches to trading and technology.

For Larry Peruzzi, senior equity trader at the Boston Asset Management Co., a division of Mellon Financial, trading opportunities in global markets have been attracting his attention to an ever-greater degree of late. "We're trading far more on an international basis," says Peruzzi, who isn't the only U.S.-based buy-side trader gradually shifting his market focus.

According to the Russell Investment Group's third quarter 2005 Investment Manager Outlook, a quarterly survey of large and small cap equity traders, 52 percent of large and small cap equity traders in the United States and Canada are bullish about overseas shares, up from 46 percent in the previous quarter. At the same time, fewer traders - only 24 percent, down 9 percent from the previous quarter - are bullish about buying opportunities in the U.S. market.

Not surprisingly, along with traders' heightened interest in global markets has come a growing awareness of the need for technology to ensure greater efficiency, liquidity and improved execution for global trading. To meet this need, independent agency brokers and direct-market-access providers - such as Instinet, a division of Instinet Group; Investment Technology Group (ITG); and relative DMA newcomer NeoNet (for more on Stockholm-based NeoNet, see sidebar, page 22) - have either introduced new global trading capabilities to the U.S. market or are touting current offerings.

Mix 'n' Match Strategies

Still, there is no one approach to global equity trading. Rather, U.S.-based buy-side traders have developed various solutions to optimize operations.

Peruzzi's approach to global equities trading, for example, has resulted in a three-way blending of platforms and service providers for Boston Asset Management. "Seventy-five percent of our global trades are going through large, sell-side firms, particularly for trades in large caps," Peruzzi says. "Twenty percent are with local, in-country brokerages around the world; and about 5 percent are with independent, DMA firms or electronic venues."

Peruzzi explains that when working with sell-side brokerages, traders at Boston Asset Management - often trading large blocks of securities - will transmit the order electronically and then follow up with a phone call to the sell-side broker to discuss strategy. "When you are talking about many millions of shares to be traded in global markets, you want additional color and to make sure that everyone is on the same page," he explains. "That means having a phone conversation about the trade."

When it works with DMA or other electronic access providers, Peruzzi notes, Boston Asset Management typically uses G-Trade/G-Port, a service of BNY Securities Group, and Liquidnet, as well as Instinet and ITG's Posit system. He adds that when his traders use the direct access providers, however, execution of large blocks often take longer than he would like. "With many of these DMA systems, you are hitting the keys yourself, and we've had several large block trades where we work for days on the execution."

Alternatively, for the trading of small cap stocks in global markets, Boston Asset Management has had some success trading with local brokerages, such as Enskilda Securities in Scandinavia, HVB Group for Eastern European companies and Samsung Securities in Korea. The value in such regional brokers, Peruzzi notes, is their ability to exploit local contacts to generate liquidity. "When the shares are not there to trade on an exchange, ... it takes someone who really knows these accounts, someone who knows the overseas holders, who can bring liquidity to the market," he says.

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