Archives

All posts for the month September, 2017

In the ‘new world’ under MIFID II data will be King. Voluminous, quality data. For trading desks, the winners will be those who use technology to process the data by delivering actionable and informative insight throughout the entire trade cycle to validate their best execution processes. At OTAS, our edge is providing differentiated analysis of market data sets allowing traders to execute more effectively across high touch and low touch flows and also have the tools to track their individual performance both in-trade and retrospectively on a post-trade basis.
For the latter, the post-trade audit trail provided by OTAS delivers a complete narrative of market conditions and exception analysis over the life of a client order. Agnostic to trade direction or strategy implementation, traders can use this feature to annotate TCA reports to evidence and substantiate trading actions or deviation from strategy due to market opportunities that arose in-trade.

This recent example illustrates how a range of market exception alerts created trading opportunities, prompting the market to react and were subsequently recorded in the audit trail:

Ladbrokes PLC – Monday 25th September

  • Ladbroke’s share price return reached the day lows at 8.32am. All other market conditions remained normal until late morning.
  • The shares then began to rally strongly. OTAS alerted this price behaviour being highly irregular compared to normal expectations.
  • Traders react to this information countering the move, volume increases significantly creating an intra-day liquidity event. Price reversion observed.
  • This behaviour is noted again shortly after as traders take advantage of similar market conditions.
  • Following a period of price stability lit volume temporarily deteriorates.
  • Post U.S market open, a number of exceptional high return alerts trigger creating further trading opportunities.

In this example, the narrative concisely details the market catalysts to support course correction or a change in strategy implementation.

Conversely, the audit trail highlights where there has been no significant market activity to benefit the trader. If a trade execution is being challenged for missing benchmark, the focus should lie with the algorithm performance and provider.

G4S – Monday 25th September – No Notable behaviour

The post-trade audit trail has a historic look-back feature which records and analyses daily market activity for the last 2 years, providing a best execution analysis tool used to help traders and compliance understand and attribute performance outcomes.

 

 

Carrefour S.A.’s (CA:EN Paris) heavy share price reaction to last night’s profit warning should not be under-estimated. Down 14% at pixel time, the company’s lowered full-year profit and sales guidance was far from expected by the market, with key sentiment risk indicators displaying little sign of stress on OTAS. Add to this an overwhelming bullishness by ‘expert’ sell-side idea generators ahead of results and it’s unsurprising the stock is being punished so heavily.

Looking at the detail, positioning in Carrefour through options, stock borrow, and credit markets all exhibited benign readings when compared to historic norms, lead indicators that typically give our clients an early warning of potential upcoming risks.

For example Short Interest, a keenly watched gauge of Hedge Fund activity, was well within its 2-year average range at 6.23%, having seen a reduction from the exceptional highs of 11.5% in late June. This past week had seen only an incremental 0.8% increase heading into numbers.

The sharp reversal in price could also be attributed to the high wave of optimism preceding the release. The TIM alpha capture portal indicated a strong swathe of positive sentiment from sell-side brokers who were pushing the stock.

One small morsel of evidence pertaining to the potential issues besetting Carrefour was witnessed in the trend in earnings momentum. Over the last month, analyst’ forecasts were revised down by an average of 4.26%, well in excess of the sector average and placing it in the bottom 10% of all negative performers in the industry group……. although arguably this was already priced into the shares with price trending strongly with earnings momentum (see chart).

As expected, the fallout from Carrefour has further hit the European Retail Index, it underperforming the broader market by around 2% intraday and leaving investors challenged to find sector alternatives.

Clients with a global investment mandate wanting to re-invest in the Retail sector can use the new OTAS Screener app to identify alternative investment opportunities that are flagging positively in the wider sector. Uniquely, clients can configure Screener to either consider all OTAS core factors or prioritise just to those factors deemed most important in their investment process e.g fundamental, technical etc.