Vietnam will remove a requirement for overseas investors to fully pre-fund equity transactions, adding to the country’s efforts to increase its chances of a FTSE and MSCI market classification upgrade to emerging market status. The regulatory change, effective Nov. 2, 2024, should resolve a long-standing barrier that has prevented the nation from being upgraded from its current frontier market status by both FTSE and MSCI. The current 100% prefunding requirement for overseas investors has hindered large funds from fully investing in the Vietnam market.
Under the announced change, local brokerage firms will assess the risk and determine any pre-funding ratio requirements for their foreign institutional investor clients when placing orders. Regardless, client accounts must be funded by 9:30am on T+2 to complete normal trade settlement. If an overseas investor fails to complete the payment, the liability will be assumed by the broker.
“We think the changes would enable FTSE to upgrade Vietnam to Emerging markets within the next 12 months, leading to more than $500mm of passive inflows into the market and potential positive revision from MSCI,” J.P. Morgan Market Research said in a note.
Even with the removal of the pre-funding hurdle, most publicly traded Vietnamese companies are still subject to foreign ownership limitations (FOL). For example, the combined stake of foreign investors in any listed bank is limited to 30% and 49% for securities listed in the real estate, oil & gas, and construction materials sectors. When a listed Vietnamese company has “reached its FOL limit” (i.e., the proportion of shares available to foreign investors have all been acquired by foreigners), and a foreigner wants to buy more shares in the company, the purchaser must buy shares from a foreigner that already holds them. The foreigner that holds these shares typically demands a premium above the prevailing market price when selling their shares, triggering a mark-to-market loss for the new investor.
Sourcing liquidity presents different challenges in Asia than in the US and Europe, with Vietnam currently trading around USD$800mm on average per day across the entire listed market. On-the-ground and live trading experience is essential when navigating difficult liquidity landscapes. Firms investing in Vietnam should ensure their trading desk is well-versed in the idiosyncrasies of the Vietnam market while maintaining relationships with local and foreign brokers to benefit from color on discreet blocks available, as well as impactful news and flows. These lines of communication carry significant value to market participants. Additionally, traders must pay special consideration to information sharing. Careful management of order flow is important in all markets, especially in Asian emerging markets where governance and event risk can be significantly more common and corrosive, driving intraday volatility.
About Meraki Global Advisors
Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.
For more information, visit the Meraki Global Advisors website and LinkedIn page Contact: Mary McAvey VP of Business Development (646) 666-7041 mm@mga-us.com
In early February 2024, in a landmark development, Australia has ushered in a new era of workplace rights with the passage of the Fair Work Legislation Amendment (Right to Disconnect) Bill. The effect date is six month from the date the Act receives royal assent. This legislation grants employees the authority to disregard unwarranted communications from their employers outside their regular working hours, with significant ramifications for non-compliance, including financial penalties and potential legal consequences.
The impetus behind this bill, spearheaded by the Fair Work Legislation Amendment, is to afford Australian workers the right to refrain from monitoring, reading, or responding to employer communication beyond the confines of their prescribed work hours. This statutory provision serves as a wall against employer overreach and seeks to rectify instances of labor exploitation, wherein employers might seek to extract additional work from their employees without commensurate compensation.
However, it’s important to note that exceptions exist for situations deemed genuine emergencies, where prompt communication may be needed. The overarching objective remains the protection of employees’ personal time and well-being from undue encroachment by employers.
The enactment of the Australian Fair Work Amendment (Right to Disconnect) Bill 2023 is poised to reshape and shake-up operational practices, particularly with Australian Asset managers. With Australian Superannuation Funds international asset allocations edging near 50%1, fund managers are now more reliant than ever on after-hours communications with their internal trading desks. Now, they may find their ability to contact in-house trading teams curtailed. There are several potential drawbacks for Australian Asset Managers:
Missed Opportunities: Financial markets operate globally, are highly correlated, and subject to constant fluctuations. Without the ability to instantly communicate with trading teams after hours, asset managers may miss out on valuable opportunities to capitalize on market movements or address emerging risks.
Reduced Flexibility: In dynamic market conditions, particularly during times of turmoil and volatility, flexibility is crucial for effective decision-making and risk management. Limiting communication after-hours could impede asset managers’ ability to adapt quickly to changing market conditions.
Competitive Disadvantage: In a highly competitive industry, asset managers unable to establish an effective in-house trading desk with traders available 24×6 may lose clients to competitors. Competitors ahead of the curve that have addressed these inefficiencies and reduced drag on fund performance from implicit costs generated by maintaining sub-optimal trading operations, estimated on average to impact fund performance by 1.2 – 2.7% p.a..2
Overall, restriction on after-hours communication with trading teams could impede asset managers’ ability to operate efficiently, stay competitive, and meet client expectations. However, outsourced trading firms with traders situated beyond Australian borders, like Meraki Global Advisors, which operates locations in Park City, UT, and Hong Kong, could provide a solution by offering seamless, round-the-clock trading services while adhering to the legal and regulatory framework.
Meraki Global Advisors operates in multiple time zones, allowing them to provide trading services during Australian after-hours when the local market is closed. This enables Australian asset managers to access global markets efficiently outside regular trading hours. With the option to outsource trading services, Australian asset managers gain flexibility in managing their operations. They can leverage the expertise and resources of their outsourced partner to handle trading activities beyond regular working hours, enabling them to focus on other strategic aspects of their business.
Meraki Global Advisors eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. Their trading services also offer cost advantages compared to maintaining an in-house trading team for after-hours, allowing the asset manager to pass through these trading services costs no differently than the multi-manager platforms have been, while simultaneously leveling up the experience and pedigree of their trading team. This cost efficiency becomes more appealing as Australian asset managers seek to optimize operations while adhering to new regulations. By spreading their trading activities across different jurisdictions, they can mitigate the risk of disruptions caused by local regulations or market events impacting a single location.
Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.
For more information, visit the Meraki Global Advisors website and LinkedIn page Contact: Mary McAvey VP of Business Development (646) 666-7041 mm@mga-us.com
Welcome to this episode of “Meet the Meraki Team.”
Meraki Global Advisors LLC, a leading global multi-asset outsourced trading firm, was founded with a rebellious determination to deliver truly conflict-free services to portfolio and asset managers. At Meraki Global Advisors, our team is our greatest asset, and today, we have a special guest to share his wealth of experience and expertise. Joining us is Mr. Simon Kelt, Head of APAC Trading of Meraki Global Advisors.
Simon Kelt has over 17 years of experience trading global markets in both Europe and Asia. He spent the last 12 years in Asia across Hong Kong and India, most recently at HSBC trading Asian equities with a focus on greater China market coverage where he helped develop and build out the business. Simon began his career in London on the JP Morgan equity swaps desk before becoming a European equities trader for Libertas Capital. He received a BCom from The University of Otago New Zealand in Finance and Economics with a postgraduate in Finance.
In this episode, Simon will take us through his journey, sharing valuable lessons learned and how each experience shaped his approach to trading and risk management.
Let’s dive right in!
“Managing a portfolio from outside the region can be a challenge, and trying to navigate the various market intricacies and structures includes risk that can be costly. We want to be an extension of our client’s desk – to be their eyes and ears where possible.”
Q1: What motivated you to pursue the opportunity in outsourced trading and led you to Meraki?
I’ve seen outsourced trading really grow in stature in recent years, and it’s been increasingly becoming a good solution for asset managers; it was well-established in the US and Europe but much less so in Asia. It always made a lot of sense to me as a good solution, particularly for asset managers who don’t have offices in the region or those who don’t have the capacity to have a full-time trader. So they can either supplement their trading or hand it over completely to devote resources to their core business and elsewhere.
I have known Ben Arnold, who set up the firm, for about 10 to 12 years. We originally crossed paths in India, where we both worked at investment banks in Mumbai, India. I subsequently covered him for a number of years when he worked for another outsourced trading business before setting up Meraki. So, when he set up the firm, it was his desire to create and offer a non-conflicted service. It seemed to him to be the most logical way to create a best-of-breed solution versus a lot of the other offerings on the street and how they operated. From the beginning, I have seen firsthand how Meraki operates and how it was received by clients and brokers as well.
In many ways, I guess I had a front-row seat to what worked best for firms seeking to outsource their trading and how this model resonated with clients across the marketplace. Ben asked me to help set up the HK office in 2020, and I really felt it was the best platform offering to clients in a space that seemed to be growing rapidly.
Q2: Tell us about your career experience and how it provides a strong base for your current role
I’m originally from New Zealand. I started my career up in London at J.P. Morgan and, after about five years trading mostly European equities, moved to Hong Kong, where I’ve been based for the most part since 2009. Basically, I’ve been mainly trading regional markets during this time, including a stint based in India for a couple of years, trading Indian equities. This is where I got some proper emerging market trading exposure, an on-ground level experience, which was certainly very valuable in understanding how these markets worked in practice.
During this time, I was able to gain experience in mostly Asian and European markets and all their complexities, market structures, and characteristics, which allowed me to have a wide knowledge base for what we do at Meraki when we trade from Hong Kong and also the early market trading session in Europe. Having a wide network of brokers and contacts across the region is certainly a very important part of the business and in achieving positive trading experiences for our Meraki clients.
Q3: What is your view on the opportunity for the Outsourced Trading space over the next 3-5 years in the Asia Pacific?
The last four years have seen some prolific growth in outsourced trading globally. There was a recent study done by Ergo, an external consultant, and they estimated that the number of firms offering the service globally is in excess of 40, up from around 10, five years ago. In a broad sense, I suppose outsourced trading and its perception have certainly changed by both investors and brokers.
On a relative basis, outsourced trading is still in its infancy in Asia compared to the U.S. and Europe. There’s really only a handful of firms in Asia offering this service so I see this business increasing in size and scope as it becomes more mainstream and as interest levels climb from buy-side institutions. We have seen some banks also launch outsourced trading businesses and have offices in the Asian region, and they’re starting to prosper and grow. We have seen the profile for this business continue to build.
We see interest from hedge funds, family offices, and traditional asset managers, all of which have different requirements, issues, and trading parameters. I certainly feel those who are providing a comprehensive outsourced trading service and a differentiated model according to clients’ needs should outperform the existing options for these outsourced trading solutions.
Q4: With the Asia live coverage desk up and running, what advantages have you been able to provide clients based outside the region?
Managing a marketable securities portfolio from outside the region can be a challenge, and trying to navigate the various market intricacies and structures inherently carries risk, and that risk can be costly at times if not managed properly. We at Meraki can work to achieve and become our clients’ desk, – to be their eyes and ears on the local marketplace ground and be able to perform as their internal trader.
Meraki advises and guides our clients on hedging solutions, keeping them abreast of local news and items not reported on Bloomberg immediately. We work to try to ascertain what’s been happening and make a portfolio manager aware even after hours if a market sector or stock is moving so that they can make decisions accordingly. We believe this can work to mitigate their risk and help them generate their alpha. Managing orders live and giving our clients the attention they need is servicing what a client needs to do.
Q5: For managers based in the Asia region, what are ways to add more alpha and performance to the fund?
Being based in Hong Kong, there’s still a lot to consider with and on behalf of our fund managers. Meraki is a resource for insight around (1) risk events, whether they be macro or stock specific, (2) understanding levels of significance for a position relative to the portfolio, (3) how a position may be impacted by something else in the region that is correlated and moving, (4) if there’s perhaps a liquidity event and giving the PM a look at that which they may perhaps not have gotten, or (5) things like running EQS screens to understand when portfolio names are overbought or oversold based on a range of different metrics.
We’re trying to highlight when they might want to adjust a position and also when things like doing some work around the borrow profile of a stock and how that may be changing and meaningful for a stock position. So all of these things we obviously try to help with, but then primarily really trying to act as a middle person to increase and enhance the fluidity of information to try and ensure what’s meaningful, what’s price sensitive is highlighted and therefore managers can make the best decision.
Q6: Taking a step further, a key edge of Meraki is its unrivaled trading experience in Asian emerging markets. With India getting a lot more focus in recent months and the recent change to T+1 as an example, how is Meraki positioned to offer the best solutions to its clients for these unique situations?
I’ve been fortunate to have lived and worked in India, and it’s certainly a very unique market that is continually evolving and can be a challenge to navigate as the industry switches to T+1. This has not been without its issues for our foreign-based clients. Given the operational challenge it presents, Meraki can help clients navigate this process.
Meraki is a direct contact between the client and the broker or the custodian, and for those that have difficulty trying to staff those local trading hours. It’s sort of 6:00 a.m. – 6:30 a.m. Meraki can assist and ease this transition and settlement process for our clients.
About Meraki Global Advisors
Meraki Global Advisors was founded with a rebellious determination to deliver truly conflict-free services to asset managers. Headquartered in Park City, Utah with offices in New York and Hong Kong, Meraki provides outsourced global multi-asset trading, leverage management, and capital introduction services to the asset management industry. Meraki Global Advisors LLC is a FINRA member and SEC Registered. Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.
For more information, visit the Meraki Global Advisors website and LinkedIn page Contact: Mary McAvey VP of Business Development (646) 666-7041 mm@mga-us.com
The South Korean Financial Services Commission (FSC) announced Sunday, November 5, that they will impose a temporary short-sell ban on both KOSPI 200 and KOSDAQ 150 stocks effective November 6th until end of June 2024.
The FSC enacted the short-selling ban in order to review the current short-selling system. According to the FSC, institutions are engaged in naked short-selling, which is disallowed due to current Korean regulation. Regulators believe it leads to an unfair environment for market participants.
The ban’s objective is to give the regulator an opportunity to implement a real-time position check system that can monitor naked short-selling. Short sell bans are not new in South Korea: this is the fourth ban since 2008-2009, with the most recent one occurring in 2020-2021. The first comments regarding a possible ban came on the October 27th by ruling party member Mr. Yoon Chang-Hyun who said, “the time has come to stop short-selling altogether for three to six months and devise fundamental measures.” Following that, FSC head Mr . Kim Joo-Hyun said they will review current short-sell regulations from “square one,” according to Business Korea and other local news sources. The full-scale ban, though, seems to have caught most investors off guard.
Government Communication
The market initially interpreted the above comments to mean a ban was likely imminent, eventually leading the FSC to make a public statement refuting a potential short-sell ban, highlighting on their official FSC website on October 30th, “the push to ban short-selling is not true, so please be cautious in your reporting.” Then on November 3rd the FSC made a second statement specifically denying regulators would enact a short-sell ban.
On Sunday November 5th the South Korea government abruptly changed their view and decided to enforce the ban. This raised questions over the government’s political motives with elections expected in April.
The previous bans have all led to positive market performance: during the 2008 short-selling ban (Oct 2008-May 2009), the Kospi and Kosdaq were up 49% and 91% from their respective bottoms until the ban was lifted. In 2020 (Mar. 2020- Apr. 2021), the Kospi and Kosdaq were up 112% and 122% during the ban. Furthermore, the 2011 short-selling ban was only three months starting from August 10, 2011, but the Kospi and Kosdaq were up 6% and 18% during that period.
In addition, Korean regulators announced November 16 their intention to further restrict short selling rules for institutions, while bringing retail restrictions inline with institutions. The FSC will lower retail collateral requirements from 120% to 105%, while also capping the maximum borrow time on a stock to 90 days for short selling purposes for institutions. These proposals will need to be ratified via the legislative process before being implemented, according to the FSC.
The overall short-selling changes may jeopardize South Korea’s ongoing goal, as ambitious at it may seem, to gain MSCI admission into developed market status.
How can Meraki Help?
Asian Coverage from Hong Kong for Global Managers is One of Our Major Specialities
Korea made this announcement early Sunday in the US and Europe, surprising global investors with the announcement and the timing. Given the Sunday announcement, local time, the timing further complicated the ability to trade objectively and effectively on the Monday morning when Korea opened without a live Asian trading desk.
Risk-driven events like this are inherently difficult to manage and this particular event generated 2-sigma intraday volatility within the markets, while the EV Battery makers collectively moved +23% on the day and single stocks like Ecopro (247540 KS) and Posco FM (003670 KS) reached limit up +30% before the close.
About Meraki Hong Kong
Our local Hong Kong office employs a full trading team available and experienced in all APAC markets. Our traders have worked locally in both Hong Kong and India and collectively have decades of experience in the region and understand the nuances of the Asian markets. Cognizant of information leakage and protecting client orders, our 3:1 client to trader ratio, as well as Meraki’s neutral, unbiased trading structure, allows Meraki to be completely aligned with its clients’ trading objectives. Please call us to provide more market colour and strategic insights.
We remain, sincerely yours, the trading team, Meraki Hong Kong.
Welcome to this episode of “Meet the Meraki Team.”
Meraki Global Advisors LLC, a leading global multi-asset outsourced trading firm, was founded with a rebellious determination to deliver truly conflict-free services to asset managers. At Meraki Global Advisors, our team is our greatest asset, and today, we have a special guest to share his wealth of experience and expertise.
Joining us is Tom O’Leary, Senior Business Strategist of Meraki Global Advisors. Tom brings nearly 35 years of extensive industry experience in strategic planning and business development, leading high performing teams, and integrating information technology for improving processes at companies building and scaling their capital markets business infrastructure. He joins Meraki from HSBC Global Banking and Markets, where he served as Managing Director and Head of Equities for the Americas focusing on managing the equities business across the globe, and a member of the Global Equity Executive Committee. Prior to HSBC, O’Leary was a Senior Managing Director with Bear Stearns in a variety of leadership positions, including Co-Head of the Global Equity Sales Division and Head of International Equities.
In this episode, Tom O’Leary will take us through his journey, sharing valuable lessons learned and how each experience shaped his approach to trading and risk management. This promises to be a captivating conversation with a true industry expert.
“Look, we’re not for everyone. Everybody’s not going to want to do outsourced trading and everybody’s not going to want to do outsourced trading exactly the way that we do it. But Ben Arnold, the founder of the firm decided this is the way we’re going to do it, and I think it’s the purest form of outsourced trading. And this is what we do. It’s the only thing we do. And it’s the only way we do it.”
Let’s dive right in!
Q1: Walk through your history and what roles you have filled over your career?
It’s been a long career. I’ve got nearly35 years of experience in the industry, but really with two long stretches…the first one being at Bear Stearns for 14 years, where I held numerous positions, and the second one being at HSBC for 11 years, where for all 11 years I was Head of Equities in the Americas. But, at Bear Stearns, I started on the Latin American desk as a salesperson. I held numerous positions, one of them was Head of Research for Latin America. I also rose to be the Head of International Equities, and eventually, right before JP Morgan took Bear Stearns over, I was Co-Head of Sales for Equities across the entire equity business.
Q2: What excited you about joining Meraki and outsourced trading?
It really was the quality of the people at Meraki. And even though we’re a relatively small firm, it’s unique in the fact that so many people at the firm have known each other from the industry for many years. Even a couple have worked together earlier in their career. But it’s really the quality of the people, and the quality of the product is the traders. The traders have a wealth of experience from the buy-side that they bring to the table. That was really appealing to me when we are going to be marketing this service and growing this business through a client service business. These guys are actually the product, so they’re what’s important. It’s their experience and the unique services offered that we really sell.
Q3: How has the landscape changed and grown since your time at HSBC?
Probably not so much as change, but certainly things continue to move at an accelerated pace. We mentioned one of the trends in the industry that I think is really driving a lot of key decisions is the cost pressures that both the buy and the sell-side are facing. And those are significant. Those started 10 or 15 years ago, and every time you feel like they’re done, they continue to accelerate.
When those cost pressures come on the sell-side, you immediately look to headcount to reduce because you usually have vast teams where you can make those reductions. For asset management, those decisions are even a little bit more challenging. They’ve got to make key decisions like-
Do I add another trader? Or do I add another analyst? Do I add another portfolio manager? Are we going to be looking at a different region?
…So, those cost pressures are real. Also, the rate of change on the technological rates of change continues to be significant for the business. These are two major mega-trends that I just don’t see slowing down whatsoever.
Q4: What precipitated the growth opportunity in the space?
I believe it’s these two trends that we’ve already discussed that contributed to the growth of outsource trading. Again, the cost pressure on asset management, and the other one is the acceleration of the work from home, or work from anywhere really, if we can call it that! I think that took an industry, this industry in particular, which has certainly existed for a number of years, but accelerated that probably forward 10 or 15 or 20 years because portfolio managers and analysts couldn’t fathom not being right down the hall or right across the desk from the trading counterparts, but then everybody learned to live without anybody when everybody was working from home. So I think those two big trends are going to continue.
Q5: Tell us about your global exposure and experience.
Most of my almost 35 years have been spent, I would say, on the international markets. And by that, I mean I’ve been focusing on markets that are located outside the United States. At Bear Stearns, as I mentioned, I started in sales on the LATAM desk, then Head of Research for LATAM, and then the Head of International Equities. And, with my partners at Bear Stearns, we had a fairly extensive expansion program going on within the equity business. I spent a number of years building out our businesses with my partners in Europe and my partners in Asia. So I traveled extensively to all those markets, probably more than my wife and my kids wanted me to be gone, but I was traveling upwards of 120-130 days a year all across the globe.
Also, with my experience at HSBC, the entire business plan at HSBC was built around the global nature of the business. Our expertise was bringing what we knew about the Asian markets, what we knew about Europe, and what we knew about emerging markets into the U.S. investment community, those that were investing outside the United States. We weren’t trying to compete with the Morgan Stanley’s, the Goldman Sachs’, or the JP Morgan’s with their U.S. equity product. We were trying to compete with what we knew from all the other international markets around the world and bringing that into the U.S. investment base.
Q6: What was the most interesting or powerful insight you learned in your career?
I’d have to say that the success in any service business is ultimately determined by your clients. It’s their trust in you and it’s their trust in your firm that ultimately determines what type of relationship you have with them. Trust is something that takes a very long time to build. But then again, you can lose it in an instant. I think you have to be very focused on doing things daily, day-in and day-out, trade by trade, making sure that you’re very focused on what this does to the long term relationship that you have with your clients.
Q7: How do you view the opportunity in the outsourced trading space over the next 3-5 years?
I’m pretty bullish on the outsourced trading space and probably the most bullish in the firm because I do believe that some of these trends that we’ve already discussed, the cost pressures and the work from anywhere culture, are things that continue to drive the business. Also, the rationalization of resources that the asset management industry is going to have to make. I think that outsourced trading makes a lot of sense and can be a natural solution for some of these challenges.
Q8: Can you speak to some of the similarities in the competitive environment of outsourced trading firms and that of what you saw over your career in traditional brokerage firms?
Certainly, client service and relationships are our key drivers to the success in both of these businesses. And specifically for trading, it’s the use of technology and how technology continues to evolve within the capital market space. But most important, I think it’s combining these two with the experiences of the traders and what the traders individually can help you do to navigate, which is already an increasingly complex environment.
Q9: What are your potential clients most concerned about, and what and how is Meraki addressing that for them?
The cost pressures are definitely the primary consideration. They may be looking at expanding into different regions of the world, and you may be able to have two or three traders for the U.S., but when you’re looking at running a 24 hour trading desk… that can get quite expensive when you talk about compliance when you talk about technology, and when you talk about personnel. I think that’s one of the reasons that they start to begin to look at outsourcing. And they’ve done that with all their other businesses- they’ve done it with compliance, they’ve done it with accounting, and things like that. I think this is just a natural extension of this.
One of the other concerns that I know that most of the people taking a look at whether or not to do this- is confidentiality. How they believe they can receive it, this outsourced trading service and still have everything that they’re doing proprietary to them and their trades proprietary to them. So I think the Meraki model fits in perfectly with that. We are more your partner. We are your licensed trader. We are not connected. We are not your custodian. We are not your prime broker. We are there solely to perform a pure buy-side trading service. And at the end of the day, you as the client, still face-off with all your counterparties across the street, and we are just there to provide you with that service.
Look, we’re not for everyone. Everybody’s not going to want to do outsourced trading, and everybody’s not going to want to do outsourced trading exactly the way that we do it. But Ben Arnold, the founder of the firm, decided this is the way we’re going to do it, and I think it’s the purest form of outsourced trading. And this is what we do. It’s the only thing we do. And it’s the only way we do it.
Q10: Why do you think Meraki ranks so high on the TRADE’s inaugural Outsourced Trading survey, garnering a 9.54 score and outperforming on the two most critical components of an outsourced trading service provider – Coverage and Execution (earning standout scores of 9.75 and 9.81, respectively)?
That’s directly related to the quality and the experience of the traders that we have on the desk. Most have over 20 years experience in some very large firms. They all have a tremendous amount of experience; they’ve seen a lot of things develop in the capital markets, they have the expertise on technology, they’re very talented deciding which way those orders should be treated because it’s not plain vanilla, it’s very complicated, and that’s the skill set that they bring to the table.
About Meraki Global Advisors
Meraki Global Advisors was founded with a rebellious determination to deliver truly conflict-free services to asset managers. Headquartered in Park City, Utah with offices in New York and Hong Kong, Meraki provides outsourced global multi-asset trading, leverage management, and capital introduction services to the asset management industry. Meraki Global Advisors LLC is a FINRA member and SEC Registered. Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.
For more information, visit the Meraki Global Advisors website and LinkedIn page Contact: Mary McAvey VP of Business Development (646) 666-7041 mm@mga-us.com
The investment industry refers to outsourced trading as a trading relationship in which the investment manager gives its portfolio order to broker-dealer counterparties to execute on their behalf. What gets lost in this casual understanding is the inherent conflicts of interest that may exist when giving their counterparty these orders with respect to best execution, payment for order flow, and information leakage. The industry has warped the true meaning of outsourced trading into a homogenous term making it easy to confuse broking with outsourced trading, as both involve the handling of orders for further trading/execution and anonymity for moving orders.
Key differences exist between a fully integrated buyside outsourced trading desk and a traditional wrapped brokerage service offered by multi-service providers. In a fully integrated outsourced trading desk relationship, the trader serves as a partner, engaging in trading communication, understanding and communicating information to investment managers to further the investment thesis, and ensuring multiple venues and algorithmic infrastructure are in place to facilitate best execution. Unlike services from large broker-dealers, there is no payment for order flow, no internal crossing of order flow, no principal order book, and no incentive outside of getting the best execution for the buyside client. In addition, the end client can be linked to the commission wallet, which can help access the deal calendar and brokerage research resources. Trust is a critical component of this partnership, as the portfolio managers must have confidence in the provider’s ability to act on its behalf, handle trades in specific ways, and align its interests with those of the fund.
Understanding Brokering: Traditional Broker Services
In its traditional sense, broking refers to the intermediation services brokers provide in facilitating trades between buyers and sellers. Brokers act as intermediaries, executing orders on behalf of clients and earning commissions or fees in return. These services typically include trade execution, market research, access to liquidity, and limited ancillary functions. They can also refer to payment for order flow, which is an ancillary financial benefit a broker can earn from their customer’s order flow.
Unveiling Outsourced Trading: Redefining the Approach and Investment Manager Considerations
Outsourced trading represents a paradigm shift from traditional broking arrangements. It involves delegating trading operations to specialized firms that offer a comprehensive suite of services beyond execution. Outsourced trading providers provide expertise, technology, and operational efficiency, acting as strategic partners rather than traditional brokers.
Outsourced trading enables the investment manager to earn credit for commissions from executing brokers and to properly allocate its commission wallet across the street, which can help on the deal calendar.
It allows for transparency during block trading and bid-wanted situations so the broker can price large trades with tighter spreads.
Outsourced trading allows the trader to act as a true extension of the investment process and to become fully integrated into risk and trading conversations at the individual stock level as well as at the portfolio level.
For a client seeking access to a specialized broker they don’t currently work with, it’s not as simple as picking up the phone and placing a trade. There are onboarding procedures that need to be followed, including KYC (know your customer), AML (anti-money laundering), connectivity, and contractual matters. However, due to the nature of their business, an outsourced trading provider is better equipped to gain access to that specialist broker.
The Benefits of Outsourced Trading Over Broker Services
Outsourced trading offers numerous advantages that set it apart from traditional broker services:
Enhanced Efficiency
Outsourced trading firms provide a holistic solution encompassing trade execution, risk management, compliance, and technology integration. This streamlined approach optimizes operational efficiency and allows asset managers (“AMs”) to focus on core competencies.
Cost-effectiveness
By outsourcing trading operations, investment managers can minimize the need for substantial investments in trading infrastructure, technology, and talent acquisition. Outsourced trading providers offer scalable solutions, enabling asset managers to expand their trading capabilities without incurring significant fixed costs.
Access to Expertise and Technology
Outsourced trading firms bring specialized knowledge, market insights, and advanced technology platforms to the table. This empowers asset managers’ investment management team(s) with real-time data, advanced analytics, and cutting-edge tools, facilitating informed decision-making.
Risk Management and Compliance
Outsourced trading providers specialize in navigating complex regulatory frameworks and employ robust risk management systems. They work to ensure compliance with regulatory requirements, transaction reporting, and best execution practices reducing institutional risk exposure.
Types of Outsourced Trading Firms
Outsourced trading firms can be categorized based on their areas of specialization:
Full-Service Providers
These firms offer end-to-end trading solutions, encompassing trade execution, risk management, compliance, technology integration, and post-trade support.
We at Meraki Global Advisors, a prominent outsourced trading firm, are known for our comprehensive global range of services. With a deep understanding of global markets, Meraki provides tailored solutions for equities, fixed income, foreign exchange, derivatives, and all other asset classes. Our expertise extends beyond execution, encompassing risk management, compliance, technology integration, and strategic guidance, making us an ideal partner for investment management teams seeking efficient and scalable trading solutions.
Specialized Providers
These firms focus on specific asset classes, trading strategies, or geographic regions. They offer targeted expertise and tailored solutions to cater to the unique needs of asset managers operating in those domains.
Expands the Fund’s Expertise and Widens its Reach
Outsourced trading represents a departure from traditional broking arrangements, offering asset managers a range of benefits beyond execution. A diverse outsourced firm can provide geographical expertise, asset-type expertise, or both to existing trading desks looking for specialization or funds looking for a fully outsourced model.
A diverse outsourced firm should feel as comfortable trading US equities as it does trading CDS or Asian OTC derivatives while understanding the market limitations and requirements to execute these instruments in each location. In turn, delivering knowledge and experience to the fund manager allows them to capitalize on certain investment opportunities or understand liquidity constraints, reducing valuable time spent researching ideas that are not applicable to their liquidity constraints.
As the demand for outsourced trading increases, Meraki continues to expand and meet the needs of our clients to help them achieve their goals. In just four years, we have expanded globally from our US headquarters and team with best-in-class global multi-asset buyside traders and middle-back-office support. We have also proudly maintained an industry-low client-to-trader ratio critical to providing a truly integrated relationship and premium service. We recognize that outsourcing may be a significant change for some funds; we are eager to speak with any managers interested in learning more about the advantages of outsourced trading and the suite of services provided by Meraki Global Advisors.
About Meraki Global Advisors
Meraki Global Advisors was founded with a rebellious determination to deliver truly conflict-free services to asset managers. Headquartered in Park City, Utah with offices in New York and Hong Kong, Meraki provides outsourced global multi-asset trading, leverage management, and capital introduction services to the asset management industry. Meraki Global Advisors LLC is a FINRA member and SEC Registered. Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.
For more information, visit the Meraki Global Advisors website and LinkedIn page Contact: Mary McAvey VP of Business Development (646) 666-7041 mm@mga-us.com
Outsourced trading firms capitalize on demand for an alternative solution to in-house trading desks. What began as a niche business is now a more crowded field attracting a growing number of players with various operating models, fueled by the asset management industry ’s constant quest to create efficiencies. In such an environment – as in any competitive service industry – each outsourced trading provider ’s value proposition becomes increasingly critical. As asset managers re-examine their business models and investment strategies in this complex environment, they do well to ask the key question: What level of service and firm structure will deliver optimal value for our firm and investors?
In outsourced trading, a provider ’s chosen operating structure heavily impacts its value proposition. Here we look at two different outsourced trading models and explore their respective value propositions. We close by sharing our views on the future of outsourced trading.
Agency broker model: an asset manager’s favorite sales-trading desk
The agency broker ’s outsourced trading offering is indistinguishable from the traditional sales-trading model of introducing broker-dealers. The agency broker maintains the relationships with the sell side and creates a hub and spoke network for its outsourced trading clients – the model’s key value proposition. Clients benefit from access to a wider broker network without the need to onboard with any sell-side brokers directly. Under this model, smaller managers are provided access to resources they may not ordinarily be entitled to, albeit likely at the expense of larger clients.
The agency broker model delivers a broad broker network for liquidity access, but other structural characteristics of this model can arguably subvert value for clients, or, at the very least, diminish the overall value proposition:
High client-to-trader ratio – Executives at agency broker-dealers often position their firms for profitability by having traders cover many clients, typically 20 or more. It is no secret that high client-to-trader ratios detract from the quality of coverage. Managers – especially as new clients – must question where their fund will land within the coverage trader ’s priorities. When significant market events and dislocations occur, trading volumes spike and trader capacity decreases markedly, resulting in execution control issues and response delays. Traders cannot guarantee they will prioritize orders chronologically, let alone give assurance they will be in a strong position to help managers navigate the event and achieve the best possible outcomes. Lastly, high client-to-trader ratios curtail a trader ’s capacity to genuinely understand and cope with an asset manager’s requirements and fully integrate with its investment team.
Non-directed order flow – In a traditional agency broker model, the outsourced desk can trade with a limitless number of broker dealers, alternative trading systems or exchanges. Clients considering this model should be keenly aware that the majority of sell-side firms are unable to credit them with commission attribution when the outsourced trade faces the street, resulting in a loss of valuable firepower with page 1 their PBs and preferred brokers. A top selling point for the firms offering this model is their large broker network, advertising it leads to greater liquidity access. However, SEC 606 reports filed by agency brokers reveal that, on average, greater than 50% of non-directed orders received from clients are executed through venues where it appears to be financially beneficial. In other words, the majority of non-directed order flow is either internalized, executed with clearing brokers to meet minimum revenue requirements, or, worse, routed to PFOF firms.
Authorized trader model: an unconflicted extension of an asset manager
In this model, outsourced trading providers trade solely with the asset manager ’s execution counterparties as their authorized agent (trader). This model truly embraces the ethos of what an outsourced trading firm should do: operate as an unconflicted extension of the asset manager and its investment team—a quality that represents the model’s core value proposition.
The structural characteristics of the authorized trader model further clarify its value proposition:
Low client-to-trader ratio – Because of the intricacies involved, the authorized trader model simply does not allow for one trader to cover more than a handful of clients effectively. In this model, the outsourced provider is positioned to deliver bespoke, high touch, white glove service whereby the trader adds value as if he or she were the client ’s internal trader.
Clients maintain direct relationships with their executing brokers – The fund name remains the focal point for resource providers. There is no intermediation of a fund’s relationship with its brokers and resource partners: All trades are booked directly into the fund’s account and all commissions and/or spreads paid to the sell-side are from the fund. For risk management and resource tracking purposes, the sell side increasingly prefers to know exactly who the end client is. Maintaining this direct relationship under the authorized trader model is the only way asset managers can be confident they will be able to access the full suite of sell-side services, including ECM access, research, block trades, and analytical tools.
Looking Ahead
At Meraki Global Advisors, we believe the future of outsourced trading is bright, particularly for providers delivering value through an authorized trader model. This belief drove us to pioneer the pure buy-side model. Our clients have witnessed firsthand that the most productive level of service is achieved when outsourced traders become deeply familiar with their portfolios and operate within a true partnership model. Furthermore, the value derived from conflict-free trade executions directly with a client ’s counterparties is significant and unmatched.
That said, we recognize asset managers are not homogenous; where one finds value, others may not. Some may not have the operational capacity to set up their own broker network and others may not require street resources, focusing instead on the low-execution costs. Perhaps a manager has just left a large established firm to launch a new fund – he or she may choose an agency broker to keep costs low while building a track record.
Other managers require comprehensive services and experienced traders to meet their complex and/or global trading needs. For these managers, a bespoke offering capable of trading every market and all asset classes will deliver the most compelling value proposition. As a new fund gains traction, the manager can now focus on establishing a distinguished identity with the street. The manager may also be focused on capturing the competitive advantages created by an expert trader entrenched in the fund’s investment processes, such as identifying and/or hedging key portfolio factors. Authorized traders with visibility into a manager ’s investment process can also monitor the alpha and beta contributions to portfolio names to establish a sense for crowding. This assessment can be an invaluable tool, specifically for sizing positions correctly around uncertain catalysts. These are just two of the many differentiated services Meraki delivers to clients on a daily basis.
As asset managers evaluate a growing field of outsourced trading providers, they would be well served by establishing a clear understanding of the value propositions on offer for optimal value.
About Meraki Global Advisors
Meraki Global Advisors was founded with a rebellious determination to deliver truly conflict-free services to asset managers. Headquartered in Park City, Utah with offices in New York and Hong Kong, Meraki provides outsourced global multi-asset trading, leverage management, and capital introduction services to the asset management industry. Meraki Global Advisors LLC is a FINRA member and SEC Registered. Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.
For more information, visit the Meraki Global Advisors website and LinkedIn page Contact: Mary McAvey VP of Business Development (646) 666-7041
