Whilst the buy side already recognise the extraordinary benefits that a sophisticated and actionable pre-trade analytics system can bring to their organisation, the ability to quantify the benefits and the roadmap for implementation are far hazier for most.

One of our members, however, has a much clearer view. Alastair Clarke, European trader at Capital Group has spent the past 3.5 years generating Capital Group’s in-house pre and intra-trade tool, Trading Analytics Platform for Execution (TAPE).

As part of The Finance Hive Equities: European Digital Boardroom Series, he shared the processes and hurdles Capital Group have encountered, in order to provide The Finance Hive community with a clearer understanding of how these tools can be used to empower trading desks to act as greater extensions of their investment teams.


What drove you to invest in pre and intra-trade analytics and how has the tool benefited your business?

The initial step was to create an aggregated platform to help traders be better informed, distribute content faster and reduce decision making process through validated information. With the shift toward outsourced trading desks and use of machines, it is really important for traders to be able to demonstrate the value they add. By utilising pre-trade analytics, we are able to back up our arguments by providing an idea of the stock profile, pre trade cost and time frame before the order hits. This allows traders and fund managers to discuss a tailored execution strategy.

It has been a harder ‘sell’ for the more seasoned portfolio managers who have executed a certain way for many years, but I am pleased with how they are now changing and opening up to suggestion. It’s the younger crowd coming through that are lapping it up! So, for me, whilst we have already had the system successfully running for the past three years, I see it benefitting us more over the next four-to-five years, as more and more of these younger guys come through. It will be their go-to place to gain data-backed insight into how they should manage an order or whether it is a stock that they can easily get out of without too much impact.

What has been apparent during the recent ‘new’ working environment is the greater adaptability that all PM’s, established and new, have shown towards trading strategies and input. Long may that direction continue.


Do you think it’s a problem that pre-trade analytics aren’t always entirely accurate? 

In my opinion pre-trade analytics are there to give you an indication, it is not there to give a definitive answer. Especially with recent data points and market volatility. Do you include February through March data?  Or is it not valid now in ‘normal’ conditions and will it actually distort your indication? Bottom line is when speaking to a manager you’ve got a starting point. Is the manager happy with a 2% premium, 4% premium or higher? It starts a conversation.  What has been hugely beneficial are the intra day analytics, seeing your actual prints live on price charts, your volume vs the mkt at that moment and seeing the venues used. It aids all our global traders to reduce the time it takes to make a decision, to speed up or slow down an order, whilst fully validated.


How does this affect the relationships between portfolio managers and traders?

It is very important to cultivate these relationships. For fund managers, it really is all about time vs cost and how that sits with them. We give them ideas about how long it’s going to take to trade, talk about volatility of stock, but then also – what’s been really apparent recently – the risk profile of one-off block trades, which can for us be anything from $50 million up to $1 billion. Pre-trade analytics can help to succeed in this by giving us a full menu of the order, cost in 25% of the block 50% or the full 100% of the block vs expected cost over 1 month. As traders, we are becoming more confident in selecting a best fit strategy, but there have been times when the managers have turned around and said, “ Thanks, but no thanks” – and that’s fine as well!

In my opinion working from home has enhanced trader/PM relationships. We have to be more front footed with our thoughts and information. When you’re remote, to be more involved in the process is important. I have definitely spoken more about orders with PM’s than before. Being apart has made us talk more, which in turn has helped execution strategy and having the tools at our fingertips has made our role more informative and efficient.


For many of our members, the major roadblocks are related to cost and resource – where to find the IT team to build it. There is also a concern around monitoring and governance. What advice would you give to Finance Hive members looking to build their own internal systems?

Resourcing is all about getting management to buy into the idea – which can be quite a hard discussion, especially if money is involved. But I think you’d be surprised on how reasonable it is to set something like this up – especially when you can save the cost of the system in one or two trades. It is not difficult to go out to technology incubators and smaller software providers to ask for their development help as well.

My advice would be to start with baby steps; stick to simple APIs that are additive first, do not go all guns blazing to start with. Start simple and build a straight-forward system that can do one or two things very well and once you have your people on board it will snowball from there – you’ll be surprised where the system can end up once other traders have had an opportunity to put their input in. The important thing to remember though is that it absolutely has to be additive and speed up the decision-making process.

Generally, IT departments speak a different language and don’t want to speak to the end-user of the system they’re building, which is frustrating. However, you can overcome this by getting together small groups of collaborative architects and traders to come up with a solution together. In effect creating a hybrid role for your trading desk.


Which provider has the best pre-trade tool on the market?

For an overall tool, I really wish I had the answer to this but unfortunately, I don’t. The right answer is the tool that best fits your trading requirements that you can design and build yourself.  What I would say though is that just because there’s no perfect platform out there, doesn’t mean that you shouldn’t use one. Pre and intra-trade analytics are going to become so much more of a key factor for proving where we can add value alongside a machine, so they really are worth the investment.

We work with a third party to get a better idea about pre-trade risk profiles. What’s been great about working with them is the level of customisation that they’ve been able to give us – we’ve essentially taken only the parts we want and left everything else and then married that to our internal systems where our internal tech team have packaged it up into one of our own containers.

However, whilst we’re currently partnered with one third party, it’s my view that going forward, with so many opensource offerings out there – such as ChartIQ, Symphony, Earlybird Twitter etc – there is no reason why I couldn’t be partnered up with six or seven providers in the future, as the market and what I need in front of me changes.


What are your top tips and tricks to get the most out of analytics?

As traders, we need to differentiate ourselves and the onus is on us to do that. When I am working within TAPE, I’m conscious of what I’m putting into it as I only want to pull information that managers cannot regularly get from their brokers. I don’t want a system that just regurgitates what brokers or other salespeople can send them. That’s just inefficient. I want our system to be talking about cross over rates, short interests, momentum, volatility. to push information that is actually really useful and provides a source that PM’s cannot get anywhere else – this is what the fund managers find interesting and improves our engagement.