FLASH FRIDAY: Program Exchange, 2006 to 2022
FLASH FRIDAY is a weekly content series about the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura Company.
In the December 2006 issue of Traders Magazine, Richard Johnson was one of nine sell-side trading professionals who participated in a question and answer session about the trading program.
“The market as a whole is becoming more electronic and more fragmented, and people are becoming more quantitative in their approach to trading. This will lead to an increase in program trading and algorithmic trading,” Johnson told Traders Magazine in 2006. One of the main challenges is the emergence of these new ‘dark pools of liquidity.’ To effectively manage a portfolio transaction, you will need an algorithm that can represent you in all the dark books and intelligently manage exposures. while running in the displayed market.
Traders Magazine caught up with Johnson, who these days looks more like a professor than the college student he might have passed 16 years ago, for some insight.
What do you remember was the landscape of program exchange around 2006? How has it evolved?
I was at Miletus Trading at the time, a boutique algorithmic trading broker. At the time, many program trading streams were run through the principal, blind bids, and we argued that it was possible to achieve better performance over time by running as an agency and avoiding the risk premium. Additionally, we heard that clients often prefer their prime brokers with an agency feed. So the trade was much more clustered back then and the big investment banks took most of the flow.
Since then we have certainly seen more unbundling and the buy side taking more control over their flow.
What has changed/stayed the same in the securities industry since 2006?
Miletus was a leader in e-commerce. And in the years since, we’ve seen every company focus more and invest more in electronic trading solutions. Now, of course, e-commerce is ubiquitous.
In that article, I mentioned how the market was becoming “more fragmented” – well, you could say the exact same thing today! We just had the 17thand SEC Approved US Stock Exchange.
What was Miletus Trading, what did you do there and what happened to the business?
Miletus Trading was established as an e-commerce brokerage agency, to capitalize on the expected growth we have seen. I think we definitely made the right choice. I started on the product side building the pre- and post-trade TCA, but eventually ended up managing sales and trading. The following year, Miletus was acquired by Liquidnet and became their agency office and algo product.
How has your career evolved since 2006?
I stayed for a few years at Liquidnet, then I joined Societe Generale, where I managed the electronic trading desk for them. But in 2015, I made the decision to pivot and focus on the crypto and blockchain space. I realized there was huge potential in the asset class and technology and I wanted to be part of it. I did consulting for startups, then spent 4 years as an analyst at Greenwich Associates covering blockchain and equity market structure.
What prompted you to switch to digital securities?
As I watched how the crypto space evolved, it became clear to me that there was a lot of potential for digital securities to help improve capital formation and liquidity in private markets. So I started Texture Capital as a FINRA and ATS broker – we are now one of the very few authorized companies for digital securities.
My days at Miletus were also part of the inspiration – working in a startup is extremely challenging, but also very rewarding. I enjoy working near cutting-edge technologies and finding innovative solutions that can improve capital markets.
What could the next 16 years hold for us?
Well, I hope I won’t be working so hard in 16 years! But I believe the digital securities space will have evolved significantly. For example, a recent study by a company called Arca found that 77% of capital markets professionals believe all securities will be tokenized within the next 5-10 years. I look forward to leading Texture and the industry through this transition.