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Northern Trust Finds Success in Unity

Northern Trust consolidated its trading operations in time to weather the financial crisis and streamline the trading process.

Though Rich Vigsnes became global head of equity trading at Northern Trust less than two years ago, he already has overseen the transformation of "a couple of trading desks" into one consolidated trading operation. "We effectively had different physical locations in the U.S. that we brought together, as well as bringing the group together from a technological and trading standpoint," he relates.

This consolidation ultimately helped the firm weather the financial crisis of the past two years, Vigsnes asserts. "There was no frantic trading, and that speaks to our ability to efficiently manage the trading that occurs," he says. "The consolidated trading desk was in our best interest before the crisis, and it helped us be very effective during the crisis as well."

Vigsnes points out that over the year and a half that he has been in his current position, he's seen some "interesting days." But, he stresses, the trading team was never in a position where it didn't know what it was trading or why. And that was a direct result of the new structure.

As for the technology that powers the consolidated trading desk, the entire trade flow life cycle moves through Northern Trusts' Charles River order management system (OMS). "An OMS can be many different things to many different people," Vigsnes notes. "We view it as starting with the compliance piece -- getting the trade from the portfolio manager to the trading desk and the ability for the trading desk to then have all orders in one place."

From there, the trading desk generally leverages the ITG Triton execution management system for execution, according to Vigsnes. But trades ultimately find their way back into the OMS for allocations and updating downstream systems. "We made a conscious decision not to combine too much EMS functionality into the OMS," says Vigsnes. "As much as people talk about -- and I would love to see -- one application doing everything, for the flows that we have and the breadth of strategies that we employ, it's just not functionally feasible."

In addition, Vigsnes says, he wanted a broker-neutral EMS in order to execute with multiple venues, and ITG's pure agency trading fit the bill. All of the group's direct market, dark pool and algorithmic access, as well as direct lines to brokers, are housed in the EMS platform, he notes.

"It's fairly dynamic, with constant changes occurring," Vigsnes says of the EMS, adding that changes to the OMS are so pervasive that the entire workflow needs to be regression tested, which he describes as a "major event" with substantial lag time. "The ability to implement changes in response to changes in the marketplace is enhanced by splitting these out." Further, the message and trading information traffic inherent to an EMS would substantially impact the performance of the OMS, according Vigsnes.

Learning From the Crisis

But while Northern Trust's unified trading operation served it well during the financial crisis, Vigsnes acknowledges that the turmoil of the past few years is helping guide current decisions. In general, he says, the size of his broker list has been shrinking over the past couple of years. "But we want to be cognizant and have diversity around different types of brokers out there as well as what we consider to be commoditized types of algorithms and other algorithms that we think are better," he explains.

Vigsnes also is thinking more about the location of brokers. "Maybe I don't want all of them to be U.S. broker-dealers," he comments. "Maybe I want a large foreign agency shop to focus on what kind of counterparty risk we're incurring." As for that counterparty risk, Vigsnes says he is scrutinizing details of his counterparty relationships, including clearing arrangements, commission-sharing arrangements (CSAs), balance policies and more.

The financial crisis also has made Vigsnes more aware of measuring the risk side of the trading equation. "When we were looking at building out trading tools, we made sure risk controls and risk models and optimizations were available to us within the tools so that we didn't have to look at risk separately, and that helped us substantially," he reports.

Meanwhile, regulation emerging from the fallout of the crisis will define Vigsnes focus in the coming year. "Making sure we are keeping up with what we see regulators doing, and making sure we're able to adapt to the consequences of their actions is going to be a driving force this year," he says.

Lowering latency also is a priority for the trading team. "We're not high-frequency traders, but we still react and participate in a marketplace that has a lot of high-frequency traders, which generates a lot of bids and offers and messaging traffic," Vigsnes explains. "So we want to make sure we are able to not have any latency in our ability to disseminate and receive information." Improving latency also will help the trading desk improve its smart order routing and its ability to access liquidity effectively, he adds. n

Profile: Rich Vigsnes, Global Head of Equity Trading, Northern Trust

Assets Under Management: $627 billion.

Time in Current Position: Less than 2 years.

Technology Used to Trade: Charles River OMS, ITG Triton EMS. The group also relies on Trading Technologies to execute futures and on FXall for foreign exchange transactions.

Size, Structure of Trading Desk: There are 14 traders on the desk -- 11 located in Chicago and three in London. The primary focus of the trading desk is equities, but the team also trades futures and options on equities and indices as well as FX as it pertains to equity executions. The desk is structured around product class and expertise as opposed to sector or market cap. "The first big distinction between traders is single stock versus portfolio or program trading, and then traders have specialties -- maybe someone is more knowledgeable about a product line or our passive flows versus active flows," says Vigsnes.

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