Jump in with both feet first. That’s the mantra of Dan Royal, co-head of global trading at Denver-based Janus Capital Group.
The triathlete, who’s competed in two Ironman competitions, embraces a challenge. Whether he’s running a marathon or looking for way to improve the trading desk, Royal doesn’t waste time when he sees ways to improve performance.
And his operation is a sprawling one. Royal oversees seven Denver-based traders, two traders in London and a pair in Singapore. That entails a broker list of 166 firms, seven electronic crossing networks, 18 different algorithmic vendors and 160 unique algorithms–enough to make one’s head spin. He shares the privilege with Craig Brown, who co-heads the group and runs trading operations.
Royal’s first challenge is to unify operations, like the various execution management systems around the globe. And a big part of his job will be paring down the numerous algorithms on those platforms.
His goal is to organize Janus’ algorithms into a few easily identifiable groups, segregated by characteristics such as passive or aggressive strategies. From there, he plans to internally rename the algos to avoid the sometimes distracting and confusing labels with which brokers have branded their products. Janus wants to "white label" algos so that traders can focus more on how they works and perform, rather than on the algos’ brands.
"With all these algos, we have a lot of dilution and noise," Royal said. "I want to get to the point where we have only 30 to 40 different algos from our current level."
Once the algo list is pared down, Royal and his traders will analyze and compare algo performance and use the cream of the crop for best execution.
Royal expects the next phase of algo development will assist him in risk management and have built-in risk prevention protocols. This would allow his traders to navigate the market more easily and avoid adverse price selection. The key is finding the right balance between protection and flexibility, he said.
"We need algos that provide us with enough latitude to do our job, but that will protect us at the same time," he said. Royal plans to implement algorithms that embed trading collars at the child order level, as well as require traders to input explicit limits at the time of the order placement. If a limit is hit, the algorithm will pause–giving a trader a moment to decide to continue trading, change algorithms or alter his strategy.
Using algos is a far cry from where Royal began his financial career, back in 1984, as a runner on the floor of the Chicago Mercantile Exchange for Cargill Investor Services. Rising through the ranks over 10 years there, he found himself running the foreign exchange floor operations using pencil, paper and his gut.
Looking for a new challenge and after a brief respite, Royal joined SJO Asset Management, where he traded fixed income futures. He left in June 1997. From there he moved to John Henry & Co., where over the next four years he traded fixed income securities, foreign exchange and commodities out of its Boca Raton, Fla. trading floor. Then, as fate would have it, in 2001, Royal got a call from a Janus via an old Cargill acquaintance.
"They [Janus] were looking for a turn-key Foreign Exchange Trader to groom as an equity trader," recalled Royal. "So, I threw my hat in the ring and was fortunate enough to get the job," It turned out Royal, the veteran foreign-exchange trader, would spend 90 percent of his time trading equities.
Trading equities was a stretch for him, he said. For Royal, the biggest difference between equities and forex or fixed income was in terms of liquidity. The foreign-exchange, futures and government fixed income markets are very liquid and deep, regardless of currency or securities, so liquidity was easy to come by. But in the equities space, it was harder to find. "Some names are very liquid, but for others it’s definitely a challenge," he said.
Royal added that facing a lack of liquidity in certain stocks helped him hone his trading approach. He began to think more strategically and long-term, versus the more short-term tactical approach he had used in forex and fixed income.
He left Janus in 2006 to become director of trading operations at Artisan Partners. While there, he discovered that Artisan’s portfolio managers were more autonomous in their decision and investment making process, whereas Janus had a more centralized and internal research driven approach. This broadened his perspective on how the investment process varied from firm to firm and the role of the trading desk.
"Looking back on it, it was a wonderful opportunity to be a part of Artisan’s team … it was a great learning experience," Royal said. After two years, he returned to Janus with a wider understanding of how firms operated–and ready to make his mark.
Aside from working on revamping his algorithmic trading program, Royal is also reviewing his trade-cost analysis. He is looking for real-time analysis of his desk’s trading decisions, rather than a system that provides him periodic snapshots. The desk will shortly bring on a new TCA provider, which he declined to identify.
"With a system that works real-time as a trade is in process, my traders can see what TCA impact they are having," Royal said, "If a high-cost trade is in process, a trader can see this and decide if it makes sense to continue. TCA becomes an effective tool in the trade decision making process, and at this stage, positively modifies trading behavior."
