With the markets continuously being reshaped, in retrospect, it's surprising that it took this long for the new role of liquidity strategist to emerge on Wall Street. When Editor-at-Large Ivy Schmerken and I sat down to lunch with Michael Bleich of Lehman Brothers and he told us about his new position, it was an "aha" moment for both of us. Although we knew that every firm on the Street watches market structure changes, especially with the coming of Regulation National Market System, it was the first time we had heard of a firm creating a full-time, dedicated position around it.
We soon discovered, though, that while Bleich may be the only "liquidity strategist" per se, he has counterparts at other firms - some engaged in the role full time and others adding the responsibility to their existing roles. And although we have yet to hear about this particular position emerging on the buy side, these firms also are watching market structure carefully. John Wheeler, director of U.S. trading at American Century, told us that although it's not formally part of his role, he spends a good deal of his time analyzing the potential effects that Reg NMS could have on the markets.
But why now? The markets constantly change - why is there a need to hire liquidity strategists today?
As Andy Brenner, head of ISE's new stock exchange, points out, the change the markets are going through now is unprecedented. Between Reg NMS, the emergence of new pools of liquidity via crossing networks, investments in regional exchanges, and consolidation among exchanges in the U.S. and abroad, major change is imminent, and only time will tell what the full impact of these events will have on the markets.
But broker-dealers aren't taking any chances. They want someone at the helm to analyze the potential effects of these events and develop a strategy around them. The broker-dealers' world already has changed dramatically in the past few years as their order flow from the buy side has diminished and their roles as execution consultants and algorithm providers has become more prominent. Further, with the growing popularity of algorithms, broker-dealers must understand the intricacies of the market intimately in order to create new tools to successfully navigate the new market structure. And, as part of their role as execution consultants, they must be in a position to share their knowledge with the buy side, helping it to transition to the new world of trading.
This is no time to wait and see. The broker-dealers that remain relevant in this new world order will be those that take proactive steps - like those mentioned in our story, "Liquidity Hunters," page 15 - to analyze the markets, develop strategies around their predictions and take charge of their futures.