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The Trading Mesh

HFT and European Market Structure

Thu, 23 Jun 2011 09:32:00 GMT           

Niki BeattieAn Interview with Niki Beattie

In this interview for the High Frequency Trading Review, Mike O’Hara talks to Niki Beattie, Owner and Managing Director at Market Structure Partners (, an independent strategic advisory firm that specialises in capital markets structures. Niki is a leading expert on the makeup of Europe’s financial markets, and her clients include some of the world’s leading investment banks, trading venues, clearing houses, asset managers, hedge funds and proprietary HFT firms.

HFT Review: Niki, can we start with you giving readers a little bit of background on yourself and your company?

Niki Beattie: Yes. I’ve spent 17 years in the city, most of it with Merrill Lynch. My role there progressed through the onset of electronic trading and the evolution of all of the exchanges in Europe from voice-broking to order book trading, so I began strategizing for them and eventually became Head of Market Structure there.  Then in 2008, I decided that things were so busy in the market structure space that I should go out on my own, so I set up Market Structure Partners, which is a small team specializing in issues around clearing, trading, regulation, etc.

HFTR: What are the main impacts that technology has had on market structures in recent years, do you think?

NB: Technology has impacted every part of the value chain, from retail and institutional investors through to exchanges and clearing houses. No one has escaped the impact. Although, as is always the way with innovation, some firms have been quicker to respond than others.

Technology has also helped lower barriers to entry, which means that many new participants have been able to enter the market for the first time. It has also been an enabler of many new investment strategies, as well as changing styles of communication and possibilities of disintermediation.  It has certainly reduced the scope for error in the traditional trading process and helped improve transparency and measurement. But it has also introduced new risks across the value chain.  And the ratio of money being spent on people to that being spent on technology has shifted greatly, with more money being spent on technology all the time.

It has played a part in lowering costs in the industry, but it has also created more competition. Those who have invested heavily but not created an edge have found their margins being really squeezed.

HFTR: You mentioned about technology improving transparency and measurement. Doesn’t the growth of dark pools make the markets more opaque?

NB: I don’t necessarily agree with that.  At a granular level maybe the UK is worse off in terms of transparency, but on a Pan-European level, Europe has greater transparency than it used to have and the real growth of dark pools is probably not as great as people think.  Many European countries had OTC/dark pool trading going on with far greater opacity pre MiFID.  It was so opaque they didn’t even know how to measure it or where to see it.  Yes, there is still room for improvement but actually there’s more information out there than there was previously.  The dark pool issue is not just a function of technology; technology can actually increase the transparency of dark pools. It’s more down to regulation and how the framework is crafted.  It’s not down to technology that we haven’t got transparency.

HFTR: What type of firms, or which areas of the market, have been quickest to respond to new technology opportunities, do you think?

NB: Well, anybody with a global perspective and working out of a major financial center. I see every market participant as being on a broad spectrum of capabilities and budget expenditure.  So obviously the big banks, the big asset managers and the big brokers have responded much quicker than say their smaller counterparts.  And beyond the big banks and the brokers, you’ve got the real innovators like high frequency trading firms and statistical hedge funds who are all using technology to do things differently.

HFTR: You also stated that technology has brought more possibilities for disintermediation. Can you give a couple of examples of where you see that happening?


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