Andy Maynard, global head of equities at China Renaissance Securities, is a proud, card-carrying member of the high-touch trading desk.
But how does he keep his desk competitive and efficient? After all, “high touch” means human traders, versus the electronic low-touch systems that have come to dominate the trading of equities globally.
A buy side, like a fund management company, will send the broker an order to transact a security within a price range and a timeframe. The broker will try crossing it with other client flow, or perhaps against the firm’s own book – but then it’s up to the broker to call around the market and sell the deal in bits and pieces.
For two decades in the U.S., and the past ten years in Asia Pacific, equities brokers have largely gone low-touch, as markets become electronic. They rely on algorithms to execute a variety of strategies across a web of connectivity to local stock markets, usually referred to as “direct market access” or DMA.
This trend began as ways to trade cheaply, efficiently, and to avoid the very human temptation of front-running client trades. The low-touch world was really given a boost by European regulation that sought to ensure best execution for customers by unbundling trading, research, corporate access, and other services, so that everything had to be accounted for separately. For many bulge-bracket firms, the numbers for headcount didn’t add up. So: give it to the robots.
High-touch in an electronic world
CRS is different. Owned by mainland Chinese private equity, the company has built a leading boutique business in China “new economy” stocks, from IPOs and corporate advisory to secondary markets. It specializes in trading A Shares, H Shares, and American depository receipts. Its specialization, especially as a bookrunner for big companies like Meituan and a liquidity provider across smaller China TMT stocks, makes it a go-to for buy sides that need liquidity.
“Almost all of our revenues are from high-touch services,” Maynard said. “When a China stock is ready to unlock value, when there is a liquidity event, we become a go-to firm. Buy sides will pay high-touch-plus fees because liquidity is so important to them.”
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In this regard, China Renaissance is like a lot of local Hong Kong brokers, which also tend to be purely high-touch, but are feeling the desire to extend into markets like the U.S. – and are hurting from being left out as their clients increasingly demand low-touch service.
High-touch boutique or not, CRS still has to provide clients with best execution. Clients do expect the basics in services affiliated with electronic trading, such as transaction-cost analysis and DMA. The size of the passive investment market means CRS has to compete on services like blocks, which is usually done via programmatic trading.
“Say a big buy side has orders for an IPO,” Maynard said. “They trade 95 percent of their business down a pipe. Well, then I need to be a pipe too.”
And as the China equities market broadens, as with the introduction of Hong Kong Stock Exchange’s China Connect programs, brokers like CRS have to ensure they are plugged in without a hitch.
Maynard says he has limited resources dedicated to the middle and back office, despite having to run a high-touch business with a growing need for electronic connectivity with about fifty counterparties.
CRS has been partnering with Broadridge since 2016 for multi-market support across Hong Kong, the U.S., and now mainland China via Broadridge’s links with HKEX Stock Connect.
James Marsden, managing director at Broadridge and head of its post-trade business in Asia Pacific, says China Renaissance relies on the company for complete straight-through processing. This extends from allocations when a trading decision is made, through to settlement, as well as post-trade events like processing corporate actions and security safekeeping.
A big driver behind the relationship is the ever-changing nature of market regulation and infrastructure. “The rules are always changing, and we help clients navigate these,” Marsden said.
This isn’t just about compliance, but business opportunities, Marsden said: “CSR wanted to offer northbound trading on Stock Connect to their clients in Hong Kong. We have a lot of experience of how to stay current with these things.”
He says Broadridge will be able to help when CRS gets to the point that it needs to offer new services. For example, Maynard says he’s reviewing whether to handle swaps and delta-one products.
If China Renaissance decides to enter new products, Broadridge can ensure its team continues to operate a single platform, so they don’t have to manage new operations and systems. And keeping the back end streamlined means boutiques like CRS can ride out periods when their niche isn’t in demand.
“As long as there’s demand for China new-economy stocks, our high-touch desk will be successful,” Maynard said. “But there is seasonality in our business. We’re prepared if we need to sit out a downward turn.”