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The Trading Mesh

Discussing HFT with an Electronic Trading Pioneer

Mon, 20 May 2013 08:59:00 GMT           

An Interview with John Lowrey

In this interview, we talk to Capital Markets veteran John Lowrey, Global Head of Electronic Trading and DMA Services at Marex Spectron who, during a long and illustrious career in the City, has held senior positions at Goldman Sachs, Knight Securities, Lehman Brothers, Nomura and Chi-X.


A true pioneer of electronic trading infrastructure and services, John shares his thoughts on a wide range of topics, including how and why markets are becoming more correlated; the true cost of some of the regulatory proposals that are on the table, particularly in Europe; the relationship between HFT and the retail investor; and the growth of algorithmic trading in the commodities sector.


HFT Review: John, welcome to HFT Review. Can we start with you providing some information about your background?


John Lowrey: Certainly. I’m American and I came to Europe in 1984, to run equity trading for Goldman Sachs. In 1988 I left to set up a hedge fund where - although this was the era of spreadsheets and the phone - we did a lot of what I would call quantitative trading.


Then after taking some time off between 1999 and 2001, I came back to Europe and spent a year running sales at Knight Securities, where I got pretty deep into managing technology as part of the business process and decided that there was a market for providing broker services to stat-arb accounts. Knight didn’t want to pursue that so I looked around to see who else might be interested. I ended up building the business at Lehman Brothers and we were by far the earliest supplier in this space. In fact most of today’s well known high frequency firms weren’t even set up when we started.


HFTR: So you could say you were an early facilitator of HFT?


JL: Yes, the idea was that we would provide the technology, the market data and a service model designed to help nascent HFT firms realise their goals, so we were probably the first ever firm to offer co-location, high speed market data and a high speed transport system.  I remember it was a great day when we first broke the one second barrier for an execution, we did 900 milliseconds and thought that was amazing! We were certainly way faster than anybody else on the street at that point; most firms were taking 10-15 seconds.


Our focus on automation at Lehman totally changed our ability to manage order flow and the high frequency part of that was very, very critical.  When I joined Lehman, the firm was 20th on the LSE and 19th on Deutsche Borse in terms of broker rankings. Within two years we were No.1 on both.  So we set the standard for how HFT firms were to be taken care of and managed.


After Lehman collapsed I joined Nomura and ran their Chi-X exchange business, where the HFT players were one of the important constituents.  And within Chi-X, I built a business called MarketPrizm, an infrastructure company focused on co-lo, Ethernet/fibre, high-speed market data and all the sophisticated infrastructure needed to manage algorithmic flow. MarketPrizm was sold to Colt Telecommunications in May 2011 and I still remain on the board there. 


So I’ve run the gamut from being a service provider as a broker, to managing exchanges, to building infrastructure and ecosystems, all helping to drive the evolution of the algo community. 


HFTR: And you joined Marex Spectron about 18 months ago, correct?


JL: Yes. At Marex Spectron, I’m responsible for electronic markets across all products. And as these OTC markets change and go more electronic, our strategy is to look at how we manage that. Today we have a little over 600 employees and we’re the largest private commodities broker in the world, owned by JRJ, a private equity firm. We have a big footprint in both OTC physicals - especially energy products - and futures markets. Part of the reason I came here was to be able to focus on new markets. I spent 32 years in equity derivatives, so it’s a great opportunity. 


HFTR: Over the course of your career you’ve seen some dramatic changes in the quantitative trading space. Originally there must have been a lot of focus on speed - you mentioned that you were the first firm to execute in under a second - but to what extent do you think speed still gives an advantage in today’s market?


JL: Five years ago speed was probably 90% of the alpha, whereas today it’s probably less than 50%. First of all, everything is now a lot faster and secondly, there are many HFT strategies that are a little bit more complex and don’t necessarily depend on being first. In the last five years most of the very successful HFT firms have moved beyond equities and futures into cross-asset strategies.  The FX World is a good case in point, but we’re seeing them in other places like fixed income and commodities. Clearly speed can’t be the only thing there; it also has a lot to do with quality of data, quality of services, the service model around the business, the ability to clear the business, the ability to appropriately model the business. All those things become very important; without them speed is irrelevant.


That’s where we are in the cycle right now. It’s very much like it was in equities in 2002 when we started this at Lehman Brothers and we were able to normalise the ecosystems so that the market data, the transport mechanism and the ability to have stock loan were all on the same system and everything happened in a very programmatic manner. There’s a huge drive now for optimisation of the rest of the ecosystem, all within an environment where the banks don’t have a lot of money to spend, so it allows firms like ours to be able to find niches in the market that we think are going to be valuable to our customer base.


HFTR: Can you expand a little on this move to more complex cross-asset strategies? What exactly is happening there, particularly in the commodities space?


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