Tradeweb and Generali Investments have worked carefully to engineer maximum change with minimal risk to better support the asset manager’s clients.
Enrico Bruni, head of Europe and Asia business at Tradeweb and Vincenzo Barbagallo, head of trading and investment management support at Generali Investments, explain how a partnership approach succeeded in effecting transformational change in the trading function.
Enrico, how long have you been working with Generali and which protocols have they been early adopters of?
Enrico Bruni: For over a decade we’ve been working with Generali Investments as collaborative innovators. Generali Investments has been an early adopter of three of our main innovations, AiEX, our auto execution tool from the early days when it was available; portfolio trading in credit; and they are guiding us towards expanding into the primary market workflow innovation.
Vincenzo, what were the main factors driving this appetite for adoption?
Vincenzo Barbagallo: A main driver is to ensure the trading desk of Generali Investments is among the most evolved trading desks in continental Europe relative to our peers.
Our natural attitude is to be a proactive participant of the ongoing evolution, actively focusing both on innovation and efficiency.
The second point is to be even more efficient. We noticed that, when we go live with orders, dealers get prices back in a few milliseconds. That tells us the evolution on the sell side is already moving forward. Innovation means efficiency, innovation means an adequate management and reduction of potential mistakes and errors, while maintaining a high quality of execution and services for the end investor.
A major element that spurred us in the push for innovation has been the strong support that we have received from Tradeweb. We were a pioneer at the time portfolio trading went live in Europe, not for the sake of it but because we realise the positive impact in the management of your business.
That takes effort. You needed to change your mindset. We have a traditional corporate culture, but our approach is still to learn from changes in market practice and improve the way we do things. So, we have a natural attitude to look outside our modus operandi and improve ourselves. Such evolutions require a team with a strong sense of cooperation, a common attitude and an interest in working together to make things better.
As a result, to succeed in a changing environment while ensuring the highest standard of service, you have to integrate the team, promoting a high degree of co-operation among all members to move forward in adopting new trading capabilities. This is the case at Generali Investments.
Which metrics do you use to measure efficiency gains?
VB: The metric we adopt in the fixed income space across both rates and credit is to maximise creation of alpha when executing orders. The human touch is crucial to achieve that, but wedding it with technology gives you the best conditions in which to trade. We have highly sophisticated tools and a team with strong background and decision-making capabilities. That allows us to adapt the way we execute. For example, on the base of pre-set parameters, a significant portion of our tickets are executed via AiEX; such methodology gives us the opportunity to better check the available prices, and get the best once available at the time orders are executed in the market.
We also measure the efficiency of tools such as portfolio trading by assessing the potential execution market impact of the of the package it-self vs “line by line” methodology.
To ensure a high degree of efficiency, both metrics and analysis need to be measured and compared to a parameter, which can differentiate on the basis of the market conditions available at the time orders go live. Such an approach required a high degree of flexibility, a strong knowledge and granularity of data, and the ability to quickly implement the outcome of the analysis to the execution strategies themselves.
Market conditions and pre-trade analysis get even more relevant when we are required to manage the less liquid financial instruments; the ability to source liquidity in such specific cases, guaranteeing a smooth execution, making sure to support clients’ needs is highly relevant at Generali Investments
Enrico, how does Generali compare to its most evolved peers?
EB: What helps distinguish Generali is their ability to take risk and manage it effectively in order to effect change. Embedded within the company is a robust risk culture.
At Tradeweb’s core, our mission revolves around reshaping people’s behaviours, a task accompanied by risk. The level of comfort a client exhibits towards risk becomes the guide by which their capacity to lead innovation, safely and boldly is measured. Therefore, working with a customer that understands operational and execution risk management really well, allows us to tailor offerings for example coming up with AiEX time release, portfolio trading or with our smart dealer selection tool, Snap IOI, so we can then embed a lot of that tailoring into best practice.
What challenges have you both faced during implementation of these initiatives and how were they overcome?
EB: One example is our use of advanced machine learning models. We need to make sure they are viable in real financial markets. Another factor is human behavioural change. We are there to enhance and support traders to do a better job, offloading to the machine to increase efficiency, not replace them. You can have the best idea in the world, but if the team doesn’t see it as helping them to leverage themselves, it will not be successful.
VB: Also, the impact is not limited to your team. Take portfolio trading, we had to manage the initiative with the risk, control and compliance departments. Making sure to onboard innovation while properly managing risk and regulation requirements was among the most interesting and challenging part of the analysis. We then implemented the new tool into the IT infrastructure team. Ultimately, the strong commitment of the trading desk’s team in adopting the new tool, sharing the positive impact with the asset class specialist, indeed has created the added value and efficiency we daily are focused on.
I do believe that it is highly important to ensure full cooperation among different teams and departments to propose, discuss and assess new, more sophisticated and evolved execution strategies as a natural evolution of business itself and the quality of service delivered to the final client.
If market participants are moving towards greater electronic execution, what advice might you give them?
VB: If you want to run your business in a more evolved manner, you need to understand that efficiency and evolution is the natural path forward. You need to manage client demands while adopting or cascading new execution methods within your group. Order and execution management systems (O/EMSs) can support onboarding of new initiatives and often help to customise them. Indeed, competing for the leadership requires to invest for growth.
EB: Coordination is critical. When we do something new, we not only change individual trades but there is an end-to-end impact. Markets are very integrated and interconnected, and we need the buy side and the sell side to support the initiative. If we work with Generali or another client, we want to include the clearing houses, venues, sell side and EMSs.
What is the impact on the technology initiatives that you have when a firm like Generali supports them?
EB: As you can imagine it’s invaluable to us when our clients support our tech initiatives. Every successful initiative was the result of a collaboration between our buy-side and sell-side clients. By addressing tangible challenges faced by actual clients, our solutions gain authenticity, helping us to refine and scale across markets. The standards we have established with our dedicated team are pushing boundaries. Notably, AIEX’s innovations shine through in tacking real trading issues within compliance and risk solutions.
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