A new era of electronic stock trading has arrived.
Equities have always been considered on the cutting edge of trading technology, as Wall Street firms have pushed to trade faster and smarter over rivals. Traders have grown increasingly comfortable with algorithmic trading — the use of a computer program with a set of instructions – over the years.
The potential around using artificial intelligence and machine learning have only bolstered this trend. As a result, Daniel Nehren, Barclays’ head of statistical modeling and development for equities, said the level of innovation that can be expected coming out of Wall Street’s stock trading desks in the coming years will be unparalleled.
“The next five years are really going to be the golden age for electronic trading,” Nehren said in an interview with Business Insider.
The British bank is tackling the opportunity head on. Barclays is currently in the process using a single algorithm, as opposed to several, to handle clients’ stock orders more efficiently, Nehren said.
Historically, if a client wanted to change its strategy during the trading day it would need to use multiple algos, cancelling and resubmitting orders along the way. Barclays’ new algo will be able to adapt on the fly to a new client request or a changing market environment.
“Because now I have one algo, I don’t actually have to cancel and replace anything. I just have to change a parameter in that algo,” Nehren said. “So it gives me a level of flexibility on how I do it in an efficient way”
Nehren, who joined Barclays in January 2018 after stops at Goldman Sachs, Deutsche Bank, JPMorgan, and, most recently, Citadel, has helped the bank become one of the fastest growing stock trading teams in the industry. Barclays’ equities business generated $2.7 billion in income in 2018, a 25% uptick from 2017. That’s more than double the average increase across the industry, which saw a 10% rise in equities revenue over the same time period, according to Coalition’s 2018 investment bank index.
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Efficiency in handling client orders isn’t the only benefit. Condensing the number of algos the banks uses for stock trading down to one will allow it to innovate more. Instead of devoting resources to maintaining multiple algos, which can be costly, Nehren said the bank can put money towards improving the single algo.
Barclays began using the algo for internal trading back in October, and brought on its first client at the end of 2018. The bank is now in the process of slowly rolling out the algorithm to the rest of its clients.
“Most of the sophisticated clients don’t care what algorithm you use,” Nehren said. “The actual right way to do it is to build just one algorithm that is highly parameterized. That means you can still replicate the behavior that the client would want if the client is more used to a certain type of trading approach, but then allows me to be more generic.”
Barclays new super algo is one piece of the banks’ next generation platform it is in the process of rolling out for its stock trading business.
Nehren said nearly all clients have been onboarded to a revamped smart order router, software that helps brokers optimize trade execution. A real-time data analytics platform that will send trading signals into the smart order router and algo is currently being developed and will be rolled out over the course of the year.
Barclays has also continued to build out its team with experts in the low-latency field. Eric Anderson, who previously served as the global head of equities and prime technology at Nomura, and Eugen Sarbu, who also came from Nomura, were both brought on over the past year to help the bank with the next generation platform.
Nehren said while all three components — algo, smart order router, and real-time data analytics platform — are impressive on their own, the true benefit comes from maintaining them on single, interconnected platform. Doing so allows them to work together more seamlessly and complement each other.
In an age where new technology develops rapidly, Nehren said the next generation platform has been built for the long term. Nehren took special care to design the platform so new tech can be easily implemented when it’s ready.
“Let’s focus on the core and building real performance first and then we can add the customization features as we build them,” Nehren said. “Trying to build pure functionality once you have everything is a lot harder to do.”
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