Europe’s liquidity crisis: Why knowledge is power for buy-side participants

Whatever the intentions of European regulators when they began their post-crisis regulatory overhaul, there appears to be little question that it has ushered in an environment where liquidity has become increasingly hard to find. Investment banks are internalising their flows more than ever, intraday lit trading activity has suffered steep declines, and the amount of non-addressable liquidity has only climbed. What does this mean for buy-side participants who are under pressure to get best execution in such an opaque marketplace?

In this Financial Markets Insight report, we hear from two of the world’s largest buy-side companies as well as a leading sell-side group. We learn about what’s causing the current crisis in liquidity, and, more importantly, what initial steps investment firms can take to deal with it. Given the complexity of the situation, it is clear there are no simple solutions. But by focusing on a dialogue with their sell-side providers, buy-side participants can at least position themselves to take better advantage of fast-evolving market dynamics. As with so many things, it seems that knowledge is key.

The report features:

• Simon Steward of Capital Group is head of EMEA equity trading at Capital Group, the global investment manager that manages more than $2.3 trillion.
• Evan Canwell of T. Rowe Price is an equity trader and market structure analyst at a company that has been investing for more than 85 years and looks after more than $1.6 trillion in assets.
• James Baugh of TD Cowen (which is now under the umbrella of The Toronto Dominion Bank), is head of market structure for EMEA at one of the world’s leading trading service providers.

Apart from their deep levels of market knowledge, these three share something else in common: the experience of grappling with a liquidity-strapped marketplace.