Innovation and Experimentation Drive Electronic Trading Growth

In electronic trading, research and technology are core investments needed to generate value and create competitive advantages for our clients. Commercial and regulatory forces, combined with rising customer expectations, have created amazing opportunities for agile competitors to differentiate on performance and service to help clients thrive rather than survive in the face of rapid change.

U.S. equity traders are waiting to find out key details of what could be the largest package of regulatory reforms the U.S. Securities and Exchange Commission (SEC) has undertaken in more than a decade. These reforms are expected to reshape the electronic trading landscape by targeting a range of areas, including tick size, odd lots, routing, fees and more. At the same time, institutions continue to challenge their brokers to leverage technology to boost performance and provide transparency while continuing to seek better-quality executions.

When you have an environment that’s perpetually changing, you must constantly invest not only to maintain your electronic trading technology but also to find ways to enhance it. As market structure continues to evolve, this rapidly changing environment excites us because it creates fresh opportunities to innovate and find new ways to support our clients. Seizing on these opportunities comes down to having a team with deep knowledge of algorithmic trading and an agile platform that can easily incorporate and evaluate innovations into its service.

Embracing innovation, fragmentation and experimentation

In this ultra-competitive landscape, we know institutions want to work with brokers who are committed to constantly innovating to meet their sophisticated needs and improve their performance. A key differentiator for BMO is our mindset for experimentation.

Our agile development methodology allows us to continually innovate our approach to algorithmic trading. This process allows us to regularly introduce new features designed to improve our platform without compromising the integrity of our service. In the past 12 months, we’ve run several experiments that have measurably improved performance and the benchmarks our clients care deeply about.

For instance, one of our newest algorithms reimagines how we schedule and interact with the market. Through experimentation, we devised new trading tactics that weren’t possible with previous strategies. The new strategies significantly outperformed in several ways, including in key benchmarks, such as arrival price slippage, interval volume-weighted average price (VWAP), and spread capture.

Transparency and collaboration drive performance

For us, innovation starts by listening and collaborating. We listen to understand what problems our clients are trying to solve and then collaborate with them on the solutions to ensure we’re making meaningful improvements that can evolve based on our shared experiences.

Through transparency and collaboration, we develop new features that our clients genuinely want and ensure they are available as quickly as possible to drive value. That makes our award-winning platform stronger. If we can improve our algorithms to lower implementation costs to, say, 13 basis points from 15 basis points, then that’s alpha preservation for the portfolio manager and asset owners.

We want to help our clients get into and get out of positions more efficiently in the currency of their choice – whether USD, CAD, or across Europe, the Middle East and Africa – so they can hold on to the alpha that they work so hard to generate, reinforcing the role of the trading desk as an important part of the investment process.  

Driving client value globally 

With every innovation, we’re looking to deliver a positive impact on client performance and benchmarks by adopting a proven methodology for algorithmic trading, particularly in Europe, where we won the European Markets Choice Award for Best Algo Provider as selected by Global Trading. By collaborating with trading desks to preserve alpha and minimize costs, combined with our local market microstructure expertise to drive value for our clients, we’re helping to make electronic trading become a value generator. 

BMO’s electronic trading operations continue to attract institutions who are drawn to our service mindset and our commitment to innovation. Not only are we proud to have contributed to our growth in market share for low-touch trading globally, but we’re excited to build on this momentum as Co-heads of Global Electronic Trading here at BMO Capital Markets.

With our global reach and the growing awareness of our capabilities, we are on pace to reach our goal of becoming a leading electronic trading broker in North America. Our advancements and approach to electronic trading continue to help us win market share in the U.S., achieving a high-water mark in the first quarter of this year. We’re swimming in opportunity. It’s an exciting time to be in this business.