Meet Martin Polak, Chief Operating Officer (All Options)

Meet Martin Polak, Chief Operating Officer (All Options)

Can you explain the roles of the main participants in modern capital markets – the market makers, the buy side and the banks 
Historically, banks have had quite a big role in financial markets. However, over the last decade you see that independent market makers have increasingly provided liquidity, even more than banks. This is particularly visible in turbulent markets: independent market makers have proved to stay in the market when liquidity is needed most. Great example was the Covid 19 market turbulence, where market makers ensured liquidity and price formation even when it got a bit wild. 

We genuinely cater to the needs of end-investors (or buy-side), by making sure they can always trade at a fair price, in liquid markets. That benefits retail investors, but also institutional investors, as well as banks. We are simply the oil in the machine, always showing prices. Banks have tended to withdraw from market making over the last decade, although they still represent a lot of transaction volume from their clients.  

We simply provide liquidity for end users. So regardless of who wants to trade: investors, or banks on behalf of clients, we take care of the plumbing, together with the exchanges. Amarket maker we ensure that there can be trading at all times, and that the price on the screen is up-to-date and competitive. 

We genuinely cater to the needs of end-investors (or buy-side), by making sure they can always trade at a fair price, in liquid markets.

How has liquidity traditionally flowed and how has electronic trading and market making changed that liquidity flow? 

Traditionally banks and asset managers used to be key sources of liquidity. But sometimes they struggle to keep up with price formationMarket makers have always been present, although the balance has shifted to independent market makers with banks concentrating on transaction volumes for their clients. 
Market makers make prices tighter, leading to more liquidity and cheaper execution for anyone who wants to trade. Over the last 2 decades, the spread (difference between bid and ask prices) has decreased massively, making trading easier and cheaper for everyone. This is a direct result of innovation and technology, in which we continuously invest. This allows us to trade competitively, ultimately benefiting end-investors because prices are better than ever before. 

The other difference we make in modern markets is to make sure that we are there at the moment where there is no liquidity. So, during the Coronavirus crisis for example, market makers kept quoting prices so that crashes are avoided: investors (retail and institutional) could still rely on accurate price formation, which dampens sell-offs and reduces uncertainty. There’s always someone who buys when someone wants to sell. So I think we prevent market crashes and help markets be more stable, even in turbulent circumstances.

Markets, and market makers, are incredibly competitive. There are always multiple market makers, not just a couple of big ones, but a wide variety of them each with different strategies. So we really compete on price and we really make sure that there’s a liquid market at all times. Diversity of market participants is extremely important. That is steadily improving, and we welcome initiatives like speed bumps which allows as many market makers as possible in the market. This helps a lot with less liquid products that are harder to quote. There’s a wider variety of participants in the market, and this increases market quality for retail and institutional investors alike. Market structure is much more diverse and resilient than ever before.

How are market makers, influencing the future development of markets do you think? 

You want diversity and competition in financial markets, and market makers that have different strategies. Most participants in modern markets use algorithmic technologies – from your household broker to pension funds, and we do too. Because we have a natural incentive to price better, we keep innovating. That benefits the end-investor because their pricing gets better, because we, and other institutions, are competing fiercely.

Market makers are in the business of providing pricing on the exchange, but they do so together with other sources of liquidity, like banks, brokers and asset managers. Exactly because there are more and more innovative market participants, markets become more and more competitive. Combined with circuit breakers (halting the market when price formation is no longer accurate), markets have become much more resilient and liquid than in the past, even under the most difficult circumstances. The recent Covid turbulence has shown that markets are operating as they should and that price formation is continuous and correct.   

So how do we influence the future developmentWhat we try to doand our competitors as well, is to try and make sure that the market becomes tighter and tighter, that everything goes through the electronic book. We are fierce proponents of trading everything on lit markets, i.e. on open and competitive exchanges, where supply and demand meet. What we see as problematic is that increasing trading volume, particularly retail trades, are siphoned off liquid markets into ‘aggregators’, affiliated platforms and SIs, away from exchanges 

This simply means that increasing trade volume is no longer contributing to price formation, deteriorating market quality. We are committed to keep exchanges the central market place for all end-investors, because it ensures them a central market place where they achieve the most competitive and transparent prices imaginable: because of fierce competition among all market participants, including market makers. 

Ideally, everything is traded on one single market as that would actually be on just one central exchange for all supply and demand. But this is not an easy thing to achieve because there are a lot of forces who’d rather want to execute trades through their own affiliates, or investment banks and SIsWe see payment for order flow and executing retail orders at reference prices, without genuine supply and demand interaction, as a threat to market quality. That’s why we really believe that full transparency and competition will be there if everything is traded on one key exchange, for each product. 

also think the whole speed game is not something that we should continue to do. Ultimately it only benefits one or two hyper fast participants while stifling competition for all the other participants. Speed bumps and other incentives to end this highly expensive arms race genuinely benefit end-investors. A pointless speed race ultimately costs end-investors real money because competition decreases and trading costs increase to recover the investments in speedThis is something for our industry, as well as exchanges, to reflect about next. 

And how do firms like All Options support broader parts of society through their activities? 
It‘s important to show that that market making has a lot of positive side effects for society, and that’s just us, doing our job. We’re in the business of providing liquidity, competing in markets, being innovative, and improving the market. Ultimately, society benefits because of that, and that is the single most important factor in everything we do 
I will say that we make sure that people can invest in the cheapest way possible, with execution certainty. We believe that if we continue to strive for better markets, a more competitive and innovative market structure, in the end the result will be beneficial for everyone 

So we focus just on that, and keep stressing this with regulators. You don’t want an oligopoly like in the past or an even more fragmented market structure. Eventually, the end-investor pays for increased fragmentation and trade volumes leaking away from central market places. Low-cost or no-cost brokerage sounds nice, but end-investors pay the price in wider spreads and less competition (albeit this is much less visible to retail investors than paying a couple of euros in trading fees on-exchange).

We believe that if we continue to strive for better markets, a more competitive and innovative market structure, in the end the result will be beneficial for everyone.

Without market makers, how would the way capital markets operate change, and what would be the impact?  
Market makers, innovation and competition ensure tight price formation. It’s the multitude of market participants that make markets better. Market makers are best placed to engage in innovation and competition, because it’s our bread and butter. Without independent market makers, like the ‘specialists’ or handful of brokers we used to have on exchanges, there is no innate incentive to price tightly, leaving money on the table that is pocketed by a small number of exchange members. That’s how markets ran until the late 1990s.  
In an ideal world where you have one market, where everything is traded transparently and deeply competitivelyand everyone can just find each other when they want to trade. Then you would even not need any market makers anymore. But that’s hypothetical. In real life, the competition among market participants, largely fuelled by independent market makers, is the best structure we have at this point.  
So what would happen right now, if there were no market makers? There would be much less trading, poor price formation, poor liquidity, wider spreads and higher transaction costs. The quality of the markets would go down a lot, especially in moments of stress, of which there are more and more nowadays.   
The proof of what we as market makers contribute is highly visible. See how markets have become more and more resilient over time. Trading costs and spreads have decreased by magnitudes over the last 10-15 years. That’s innovation and competition working for the end-investors, even in severely stressed markets. Any other way I think it will be much more expensive to trade. We may not be very visible behind the flickering number on the exchanges, but the benefits to end-investors and society are very real. 


To find out more about All Options, visit alloptions.nl

Turning The Tables On Liquidity Provision – Download The Report

Turning The Tables On Liquidity Provision – Download The Report

Europe’s trading landscape is being fundamentally reshaped as asset managers transform from ‘liquidity takers’ to ‘liquidity makers’. Our new report Turning the Tables on Liquidity Provision lays bare the changes taking place in the UK and EU’s capital markets as the after-effects of the pandemic continue to be felt.

In particular, equity and fixed-income markets are at the point of a radical shake-up as the buyside settles into the liquidity driving seat. And the impact has prompted calls for the current regulatory rulebook to be overhauled to keep pace with the changes, or risk falling behind.

The new report is written by capital markets research specialists Redlap Consulting and is the second in a three-part series on key trends in European markets, focusing on buy-side liquidity needs.

“The pandemic has created an opportunity for a new eco-system to emerge. Asset managers are now increasing control over their order flow across both equities and, crucially, fixed income markets.

“It’s a real game-changer as the fixed income markets were the last bastion of sell-side liquidity provision. We’re witnessing a sea-change in the way the markets will operate in the future.”

– Report Author Rebecca Healey

The report reveals asset managers are increasingly turning to automated trading to execute their orders. And because of increased innovation in trade initiation, creation, and execution, they’re able to engage with more liquidity providers, including independent market makers.

These new systems help to solve traditional impediments in bond markets which prevented the buy-side from engaging with a more diverse and broader set of counterparties due to the infrequency with which bonds trade and the risk of incurring any information leakage. Now, the ability to automate trading intentions as well as order flow provides the buy-side with the ability to maximise potential engagement yet still protect information about the trade and prevent undue price movements.

Another key finding is that asset managers require better post-trade data to select the most appropriate counterparty to trade. Crucially, respondents want to better understand whether their order flow has provided or taken liquidity – which determines who they select as a trading counterparty.

Piebe Teeboom, Secretary General of FIA EPTA, the European industry body for market making firms, which commissioned the report.

“The trends identified in this report are significant as they signal a clear shift in the balance of liquidity provision in European markets. It’s a fundamental realignment which policy-makers should consider as they update the regulatory rulebooks in both the EU and UK.”

– Piebe Teeboom, Secretary General of FIA EPTA

Based on interviews with global heads of trading at 30 EU and UK based asset management firms with over $35 trillion of assets under management, the report found:

 

    • Nine out of ten respondents (87%) want to maximise their liquidity access with market making firms;
    • Seven out of ten respondents (70%) said data and technology continue to increase in importance in deciding where and how to trade;
    • Two-thirds of respondents (67%) said transparency is a key factor in the selection process of liquidity partners.

“Between 60-70% of our order flow was done on a bilateral basis historically. In the past six months that ratio has flipped. We are changing how we trade and who we partner with as a result.”

– The Head of Trading, Mid-Sized European Asset Manager
European execution landscape being fundamentally reshaped as Asset Managers transform from Liquidity Takers to Liquidity Makers

European execution landscape being fundamentally reshaped as Asset Managers transform from Liquidity Takers to Liquidity Makers

New report reveals equity and fixed-income markets at point of radical shake-up – and prompts calls for an overhaul of market regulation

Asset managers now hold the keys to liquidity provision on Europe’s capital markets in a fundamental shift in the financial ecosystem and its future development, a new study reveals today.

The widespread adoption of automated trading – which accelerated in the pandemic – has given asset managers greater direct access to new trading partners providing more efficient and diverse options to trade.

This empowerment is shifting the traditional balance of the markets as asset managers are increasingly becoming ‘liquidity makers’, rather than ‘liquidity takers’ relying solely on traditional sell-side provision of execution services.

These are the findings of a new report, published today, called Turning the Tables on Liquidity Provision, written by capital markets research specialists Redlap Consulting. It is the second research report in a three-part series on key trends in European markets, focusing on buy-side liquidity needs.

Significantly, this structural shift should prompt regulators to overhaul current markets rules, says Piebe Teeboom, Secretary General of FIA EPTA, the European industry body for market making firms, which commissioned the report.

“The pandemic has created an opportunity for a new eco-system to emerge. Asset managers are now increasing control over their order flow across both equities and, crucially, fixed income markets.

“It’s a real game-changer as the fixed income markets were the last bastion of sell-side liquidity provision. We’re witnessing a sea-change in the way the markets will operate in the future.”

– Report Author Rebecca Healey

“The trends identified in this report are significant as they signal a clear shift in the balance of liquidity provision in European markets. It’s a fundamental realignment which policy-makers should consider as they update the regulatory rulebooks in both the EU and UK.”

– Piebe Teeboom, Secretary General of FIA EPTA
The report shows how asset managers are increasingly turning to automated trading to execute their orders. And because of increased innovation in trade initiation, creation, and execution, they’re able to engage with more liquidity providers, including independent market makers.

These new systems help to solve traditional impediments in bond markets which prevented the buy-side from engaging with a more diverse and broader set of counterparties due to the infrequency with which bonds trade and the risk of incurring any information leakage. Now, the ability to automate trading intentions as well as order flow provides the buy-side with the ability to maximise potential engagement yet still protect information about the trade and prevent undue price movements.

Another key finding is that asset managers require better post-trade data to select the most appropriate counterparty to trade. Crucially, respondents want to better understand whether their order flow has provided or taken liquidity – which determines who they select as a trading counterparty.

Initiatives such as improved FIX Protocol tagging are already benefitting asset managers, but further improvements to post-trade data are needed, respondents reported.

The report – based on interviews with global heads of trading at 30 EU and UK based asset management firms with over $35 trillion of assets under management, found:

 

    • Nine out of ten respondents (87%) want to maximise their liquidity access with market making firms;
    • Seven out of ten respondents (70%) said data and technology continue to increase in importance in deciding where and how to trade;
    • Two-thirds of respondents (67%) said transparency is a key factor in the selection process of liquidity partners.

“Between 60-70% of our order flow was done on a bilateral basis historically. In the past six months that ratio has flipped. We are changing how we trade and who we partner with as a result.”

– The Head of Trading, Mid-Sized European Asset Manager
The report has been commissioned by FIA EPTA, which represents Europe’s leading market making firms, as part of its on-going efforts to provide thought leadership and insights to stakeholders on the key role that liquidity plays in well-functioning markets. In parallel, FIA EPTA recently launched a new campaign to drive greater understanding of what independent market making firms do, and their contribution to both financial markets and the wider economy.

“Market making firms are clearly a driving force in the evolution of the financial ecosystem. Their combination of technology, competition, innovation and capability to work with the buy-side provided a lifeline for many asset managers during the pandemic and has created the conditions for a fundamental reshaping of liquidity provision in European capital markets going forward.”

– Piebe Teeboom, Secretary General of FIA EPTA
Conor McCann, Head of Derivatives Sales (Susquehanna International Group)

Conor McCann, Head of Derivatives Sales (Susquehanna International Group)


Tell me a bit about your role and what it involves.

I look after the direct counterparty trading at SIG. I work closely with our sales traders who manage the relationships with our direct trading partners.

At SIG we facilitate off order book trading with various types of institution where we aim to deliver competitive prices that fit the needs of these trading partners. I am responsible for the pricing of these trades with a focus on the equity derivative space

A large reason that counterparties come to trade with us directly is our ability to minimise the impact of their large sized trades, we absorb the risks into our own trading book and look to limit the need to offload risk immediately into the market.

Outside of the pricing of these trades a large part of my role is to manage the risk we take on associated with this trading. I work within a group that is active in the inter-dealer broker market and liaise with our electronic market makers to remain plugged in to the trading and potentially avail of any opportunities that present themselves to recycle legacy risk positions that exist from our previous trading.

A large reason that counterparties come to trade with us directly is our ability to minimise the impact of their large sized trades, we absorb the risks into our own trading book and look to limit the need to offload risk immediately into the market.

What does a typical day look like?

I like to get into work around 7:15. I’ll spend some time pre-open getting set up complete and ready for the trading day. I try to get a feel for where the markets are, what’s driving them and to get my thoughts together for what to expect of the day, what needs work, what could happen that might change my thoughts.

Then we’ll, we’ll have a series of different meetings in the morning to share thoughts within the team. So we speak with some of our corporate researchers in the morning, we talk amongst the traders as well. I have a meeting with my sales traders to get the expectations of the day, get everybody on the same wavelength as to what’s important for the day. We are then ready to go once the market opens at eight o’clock.

Typically, I am quite busy for the first three hours making prices for direct counterparties. It’s rare that there is much free time during this period each day. Up until 11 o’clock is usually spent working on those core responsibilities of market making for our direct counterparty trading.

The 11 o’clock to two o’clock period is often a lot calmer, we take some time to figure out what’s going on, a little bit of reflection on how the trading has gone early in the morning.

We can use this time to schedule meetings, take some time on any projects that we are working on.

Trading often gets busy again in the afternoon. From two o’clock to 4.30 I’ll often be spending much of my time on the direct counterparty pricing again.

At the end of the day there’ll be a lot of discussion on the desk and with different people about what has gone on and what we think could be important for tomorrow. Preparation for the next day is already beginning. We also take that time to reflect on what has happened and what are the key takeaways. 

What is it that you like about working about Susquehanna?

I’m interested in the financial markets in general, so like the sector that I’m working in. In terms of working for Susquehanna, I like working for a firm that operates in a high-performance manner with a process driven and best practices approach to what we do.  We have a reasonably casual office environment but have a large work force that are all very engaged in the work. I like my colleagues, I think a lot of firms can talk of teamwork being important to them, but in Susquehanna, we certainly do live that. I find the team emphasis rewarding and do think it crucial to our success.

What is it that makes you proud about what you do?

I am proud that we are an important part of the markets that we participate. If we’re trading a product, we aim to properly trade the product, and have a positive influence on those markets.

I’m very happy that we have good relationships with the exchanges and with our trading partners and that my role allows me to have some influence in this regard. We don’t just focus on our own activities-we care about and pay attention to the overall market structure and want to see the market benefit all market users and grow.

 

So how did you get into market making like why did you choose it?

I came to it somewhat late, at university I took a pathway where I studied mathematics and statistics and pure mathematics was probably the largest chunk of my degree.

I was looking at roles that mathematics might be a good gateway into, and I knew of Susquehanna from being in Ireland and they were beginning to build a presence at our college.

I was increasingly intrigued as I learned more about the company, I was very drawn to the real interest in decision making and game theory. It gelled very well with my own interests and background.

  

We don’t just focus on our own activities-we care about and pay attention to the overall market structure and want to see the market benefit all market users and grow.


What do you think it takes to be a market maker?

In our office there’s definitely different ways to go about things, I certainly don’t trade in the same way as everybody else and there’s no one size fits all. Having said that there are some key skills you’ll need. Most important is being a clear thinker. Being able to manage a lot of information, make accurate inferences from that information and be comfortable in an environment where you don’t have full information, but still be able to make decisions.

Enthusiasm is incredibly important. I’ve been doing this for 14 years and I’m still learning things, I don’t think anybody ever fully masters market making so you do have that drive towards self-improvement. Self-awareness and critical self-analysis are important tools to have or to develop.

The #WeAreMarketMakers campaign is about highlighting what market making adds to the markets and society. What is your perspective on this?

 The key function of market making is, is to be able to provide a tradable price when it’s needed. The immediacy here is a crucial part of the service we provide. This ultimately reduces costs for investors and promotes liquidity which has the added benefit of reducing the cost of capital for companies. This in turn is a benefit to society.

Increasingly a further value add is for us to help in holding our share of the risk in our markets. The risk ultimately must be taken on, we play our part in this, pricing it correctly and holding and managing the positions through time. This helps absorb price shocks in volatile market conditions and I think this is an important function to provide to help facilitate a healthy, stable market.

To find out more about Susquehanna International Group (SIG) visit www.sig.com

Meet the Head of Trading, Alex Kieft (Flow Traders)

Meet the Head of Trading, Alex Kieft (Flow Traders)

Tell us about your role at Flow Traders, what does it normally involve?

Well, I joined seven years ago as a junior trader. After five years I became head of trading. So now I am responsible for about 40 traders and quant researchers that are working at Flow Traders in Amsterdam. I am involved operationally with the trading desks, mainly the equity desks, and I spend about 50% of the time working alongside the traders, motivating them, helping them with trading decisions where needed. From a leadership perspective, my role is about developing talent and therefore I aim to be approachable, open and flexible with the team. And then the other 50% of the time I spend more strategically on the long-term goals that we have at Flow Traders, namely becoming a one stop shop for liquidity in all financial products.

 


What does your day typically look like?

Yeah, so we come in early in the morning between 7.30 and 8.00, then we get briefed on the news that happened overnight in the Americas and Asia. Afterwards, I personally check in with all the desks to make sure there’s nothing extraordinary going on, helping them where needed to make sure we’re ready for the market open at nine o’clock, because then we need to make sure that we provide liquidity in thousands of instruments.

Then during the day, I am still checking in with traders whenever there’s something extraordinary going on, helping them along. And again, spending a considerable amount of time more strategically.


What do you like about working at Flow Traders? And about Market Making?

Everybody is extremely driven, determined to be the best every time. We’re also very tech savvy, so there’s plenty of opportunities to keep learning every day. We focus on fostering a dynamic and collaborated working environment. I have great co-workers, very international and also very diverse.

Market making is very fast paced and you immediately see the results of your actions. I have a background more in theoretical physics, where you can spend years researching something that may yield a result or not, but in trading it’s very binary. You immediately see the results and then that’s something that gives me a kick.

“Market making is very fast paced and you immediately see the results of your actions.

What is it that makes you proud of what you do?

Two things, the first is that I’m part of this company that is very successful and one of the leading market makers. We’re successfully expanding into asset classes like bonds, currencies and cryptocurrencies, where we have this ambition of becoming a one stop shop for liquidity in everything.

And then, on a more personal and role based level. I feel proud whenever the new generation of traders comes in and I can help them grow and become sort of where I’m at now in my career. Whenever they do well that makes me pretty proud.


How did you get into market making, why did you choose market making as a career?

I had some affinity with trading but not that much. I was particularly attracted to the competitive element that is in there, as well as the people that I met in trading were extremely smart, and I thought to myself that I wanted to be part of this industry where you have an entrepreneurial mindset and people always wanting to be the best.

The impact that Flow Traders has and the relevance of being a market maker is also what appealed to me. Seeing the impact in practice and how we contribute to the efficiency and transparency of the market is really interesting.


What advice would you give to others who might be considering a career as a market maker?

If people have got what it takes and want to work alongside the smartest people, then I can only recommend that they do it, and we at Flow Traders like to create an environment for those kinds of skills to flourish.

We really stimulate people in their career so that they can grow from coming basically fresh from university with just an analytical skillset and not so much knowledge about financial markets yet, and within a short amount of time, we can teach them all the stuff they need, and then they will quickly grow into being successful traders themselves.

 

 

What does it take to become a market maker?

Well, obviously it does start with an interest in financial markets. You should be able to handle a dynamic working environment well, be able to react quickly. Next, you need strong numerical and analytical skills. Also, being able to crunch data.

Then on softer skills, here we really value teamwork, because we need to rely on each other on the trading floor and when we collaborate with different departments and regions effectively.

And finally integrity is a very important value for our traders.


The #WeAreMarketMakers campaign is about highlighting what market making
adds to the markets and society. What is your perspective on this?

Flow Traders and other market makers serve society by improving the markets. We provide liquidity in many financial products which contribute to more efficient flows of money and capital, we lower the overall trading costs for any sorts of investments. We make sure investors, big and small, can trade at any time in the product they prefer,  for example, if they want to invest in green energy, market makers make it possible for them to do that at reason or at the lowest possible transaction costs.  We have a warehouse function as well. Every investor can trade any financial product under every circumstance with us. Even during real stressful times like March 2020, market makers made sure the financial markets were available and provided the necessary relief for investors in need for liquidity.

As a market maker we respond to whatever the needs are of investors. And we see increasingly that investors are focused on the ESG segments. There are now in Europe over 400 different kinds of ESG ETFs. And we trade on a yearly basis over 50 billion euros in such ETFs. We try to make sure that it’s as efficient and as cheap as possible for investors to invest in these segments.

“We provide liquidity in many financial products which contribute to more efficient flows of money and capital, we lower the overall trading costs for any sorts of investments.”

If you could tell people, one thing about market making and what it is that you do, what would it be?

As a market maker we provide liquidity so we make sure investments are possible, and people don’t have wait to do business. For example, hypothetically, if you have an illiquid asset, it can take you days or weeks  to sell it and you probably need to make a lot of phone calls to find a suitable buyer. With market makers in between, we make sure that at any given time, people can transact in these products and don’t have to wait until there happens to be interest on the other side.

A key impact of a market marker is also creating efficiency and transparency across the market.

 

 

To find out more about Flow Traders visit www.flowtraders.com