Money managers that acquire European equity research from multiple brokerages prefer to trade through Deutsche Bank; the firm captures first place in Institutional Investor’s inaugural All-Europe Trading Team survey. Morgan Stanleycomes in second, followed by BofA Merrill Lynch Global Researchin third. In conjunction with our 2012 All-Europe Research Teamsurvey — in which we asked buy-side analysts and money managers to name Europe’s best equity research teams in 50 industries, countries/regions and macroeconomic disciplines — we requested that respondents rank the brokerage firms they use on the quality of trading services provided and to tell us which firms field the best overall sales forces. (We tallied responses to the latter question to produce the All-Europe Sales Team.) More than 800 investment professionals at some 490 firms that collectively manage roughly $3.9 trillion in European equity assets responded to our question about trading services.
With this triumph on the All-Europe Trading Team, Deutsche Bank scores a hat trick: The German firm also leads this year’s All-Europe Research Team (its second straight No. 1 in that ranking) and the All-Europe Sales Team.
Money managers must consume research from more than one brokerage house, among other eligibility criteria, to participate in our research team survey.
Clients cite “good all-round research product,” “sensible risk prices” and “attentive service” among the reasons they believe Deutsche’s trading outpaces all others.
The team is directed by Stuart McGuire, head of cash trading for Europe, the Middle East and Africa. “We provide execution excellence, competitive risk pricing and price improvements in turbulent markets,” says McGuire, who is based in London. “We also provide leading access to market liquidity including our dark pool, SuperX. The SuperX European Broker Crossing System was the largest pool of nondisplayed liquidity in Europe in December, crossing an average of €363 million in shares a day that month.”
Last year the firm launched Stealth 2.0, its second-generation liquidity-seeking algorithm. “Stealth uses advanced high-frequency alpha models to opportunistically source liquidity in both bright and dark venues,” McGuire explains. “It rapidly captures trading opportunities when it discovers quality liquidity.”
More innovations are in store for this year. “We will be rolling out sales trading algorithms, which increase efficiency while enabling the high-touch traders to focus on providing execution excellence, competitive risk pricing and managing the risk orders,” he says.
McGuire notes that trading costs will likely rise this year owing to increased regulation, shorter reporting timelines and demand for greater transparency, among other factors. “Trading methods are becoming polarized due to market stress,” he observes. “Some clients are leaning toward sales trading — for blocks, risk capital and expertise — while others prefer direct control of their orders through our algorithms. Also, as flow reduces, clients are more selective about the trades they pass to the high-touch desk and they are constantly reviewing their broker lists — meaning brokers need to stay relevant in changing times.”
“They have been very helpful in key markets in Europe,” says one New York–based portfolio manager. “Execution and flow are both very good.”
Investors also have high praise for the team at Morgan Stanley. “The pan-European trading floor can control and share between teams, countries and clients all the relevant news coming through,” says one Europe-based fund manager. “People like Gaston Cortijo are very valuable, helping clients to receive precisely what they want in a timely manner.”
Another buy-sider praises the firm’s transition management desk. “Since all our equity investments are outsourced to external asset managers, we only directly trade with brokers if we have significant in- or outflows or changes in external managers — and they are pretty accurate in their transaction-cost predictions,” says this supporter, who also applauds the team’s “hands-on and excellent client service. The traders we deal with are all worth mentioning: Karin Russell, Gary Spreadbury and Naveen Baid.”
The 30-member Morgan Stanley squad is co-captained by Bradley Bilgore, European head of cash equity trading, and Craig Verdon, head of equity trading for Europe, the Middle East and Africa; both are based in London and work with associates headquartered in Frankfurt, Madrid, Moscow and Paris.
“All of our disciplines — cash, electronic and programs — approach the client base as one team,” says Bilgore. “This enables us to focus on clients’ needs efficiently.”
This structure also is well suited to a region riddled with sovereign-debt crises. “In Europe the macroeconomic landscape has made trading equities much more complex,” he adds. “The cross-product information flow has become critical for success.”
BofA Merrill earns plaudits for its “attentiveness to different order sizes and the overnight order coverage that extends through 4:30 p.m.,” says one U.S.-based money manager. “We appreciate our Merrill trading contact, Nicholas Shepard, who makes available his mobile number to cover any changes or adjustments on overnight orders. Merrill also has a strong trading back-office team that has worked with us over the years to ensure improved trade settlement.”
Daniel Sanders, London-based head of Europe cash equity trading, says BofA Merrill employs “an integrated global solution that provides consistent performance and enables us to be flexible and innovative. This coordinated platform, aligned with our market-leading alpha generation, delivers significant value to our clients.”
That it does, declares one portfolio manager. “What differentiates BofA Merrill on the execution side is the depth and breadth of their market share across Europe, and notably their dominance of flows in the U.K. midcap space,” this respondent says. “While a number of bulge-bracket brokers move increasingly toward a more electronic, direct-market-access-driven model, BofA appears committed to protecting its high-touch franchise with a large and experienced sales trading desk — and with that comes proper know-how and the ability to source liquidity that might not be available elsewhere.”
This client considers “Alexander Frost’s hedge fund sales trading team to be unparalleled, with our sales trader Ross Duncan filtering the noise to highlight the news and key flows that we actually care about.”
Adds another backer: “As a fund manager, I want to be able to trade quickly and efficiently at a price-efficient level, and BofA Merrill’s trading operations enable me to do this. In addition, my sales trading team — Michael O’Connor and Alastair Edmonds — keeps me in touch with all the latest market developments.”
Staying on top of things is no easy task, Sanders says. “The biggest challenge facing the industry is to continue to provide liquidity and execution excellence in a low-volume environment. Both macro and regulatory uncertainty have led to significantly lower equity volumes, which in turn has demanded that we continue to develop our trading product and focus on responding to our client’s changing needs.”