The Financial Services Industry Increases Its Demand for Transparency
Control Freaks
Of course, psychology plays a role in the demand for transparency as well; type A personalities such as traders typically don't embrace things they can't handle themselves.
"I'm a control freak, and I can certainly understand a trader's desire to see everything in the life of an order that he possibly can," relates Sid Hoots, who recently joined Third Wave Global Investments - a Greenwich, Conn.-based hedge fund with nearly $500 million in assets under management - as head of equities following stints in quantitative equity at Bankers Trust and Merrill Lynch. "Information on such things as size, the bid/offer spread, etc., is pretty valuable."
"I've noticed a desire expressed by traders, including our own head trader, to have more visibility of their orders," says Dana Hobson, an SVP at San Francisco-based Bailard and portfolio manager of long/short strategies at the $1.9 billion asset management firm. "It's very typical from a trader's perspective to want to better monitor your orders."
However, Hobson sounds a note of caution that cuts to the heart of algorithmic trading: resource allocation. "If we had all the time in the world, we would be all over any transparency we could get," he says. "But the difference in price would probably be negligible, especially given our size and the way we trade. Even if we were bigger, I'm not sure we would take advantage of the additional visibility anyway."
Still, the sell side has heard the call for additional transparency. "The trend over the last year or so is a move away from the set-it-and-forget-it type of algorithms and toward products that are more of an extension of traders' reach and allow them more control over their orders," says Tomas Bok, SVP of equity analytics at Lehman Brothers.
According to Bok, Lehman has been developing algorithms that allow a trader to set a strategy in advance with specific instructions to enable the algorithm to adjust parameters under certain conditions, such as a significant market event. "We've seen a lot of traction for these types of algorithms. They give traders a lot more control over how an order is executed," he says.
"As traders become more comfortable with algorithms in general," Bok adds, "they are naturally becoming more comfortable in exerting micro control over them."
Tweet This