With Katherine Chairez, Head of Execution Strategy, Harris Associates
Briefly outline your career background and current role/responsibilities at Harris Associates.
I spent the first 11 years of my career on the sell side in financial engineering and execution consulting roles at Goldman Sachs and then Citadel Securities in New York. From there, I moved to the buy side with UBS Asset Management in Chicago, where over four years I focused on trading strategy and analytics and eventually headed the Americas equity trading desk.
I currently serve as the head of execution strategy at Harris Associates, a role I’ve held for the past four years. In this role, I am responsible for best execution initiatives across global equities with a focus on algorithmic trading, automation and strategy selection.
How has the execution landscape evolved over the course of your career?
When I entered the electronic trading space in 2005, dark pools had not yet reached prominence in the U.S. During that time, algorithm utilization, when it occurred, was often confined to primitive volume-weighted average price, time-weighted average price and percentage of volume strategies.
With the emergence of dark pools and fragmentation, so too emerged a second generation of liquidity seeking algorithms. Child order placement was no longer just about size, time and price, but also venue.
Advancements in technology gave way to further innovation—new order types, new venue types, etc.—and speed became a differentiator.
Along the way, as the landscape became more complex, electronic solutions became even more essential.
How has Harris’ execution strategy adapted to such changes in the execution landscape?
The ability to navigate a constantly changing landscape is critical to an effective execution strategy. Necessarily, the way Harris executes today looks very different compared to even just five years ago.
For example, with more volume shifting toward the close in the U.S., we have pivoted to incorporate imbalance feeds, utilize better auction estimates and leverage D-Quote flexibility.
In Europe, where we have seen periodic auctions, LIS venues, SIs and MTFs exhibit statistically different markouts, we have focused on curating an appropriate liquidity experience for various segments of our flow.
Overall, as we have worked with our brokers to develop custom algorithmic strategies that align with our various order segments, we have shifted to a higher proportion of low touch trading.
What allows Harris to manage execution so well?
We run a very efficient team at Harris. From trading to analytics to execution strategy, and including our support teams and technology stack throughout, we are aligned on our trading philosophy and approach across more than 30 markets.
Because we run lean, we are also very nimble. We are able to adapt quickly to improvement opportunities that crop up over time. Oftentimes, we are the first client to approach a broker to request a given feature.
We maintain frequent interactions with our brokers around the globe so that we can supplement our observations at Harris with what they see more broadly. These collective findings often motivate new initiatives and collaborations, such as new algorithm features or strategies, that we pursue on our path of continuous improvement.
Finally, we have the full support and trust of our portfolio managers, which allows us to pursue the initiatives that we think will be most meaningful for our clients.
How have objectives around execution strategy changed?
While the landscape has changed considerably over time, the name of the game has remained the same: liquidity. The challenge, though, is not about separating good liquidity from bad, as some believe. The challenge is in understanding one’s own liquidity needs, discerning the goals of would-be counterparties, and ascertaining how and when those interests should intersect. In my opinion, firms that can do these three things well are serving their clients well.
How do you measure the effectiveness of your execution strategy?
We utilize structured A/B experiments to observe the effectiveness of a given test strategy versus the status quo. Harris uses impact-adjusted arrival price as our primary benchmark for measuring trading costs. We also consider other factors and data points, such as volume-weighted average price, participation-weighted price, reversion and liquidity capture, for additional insights on execution quality.
How do you see execution strategy needs changing in the future?
I think we’ll continue to see a trend toward more consistency and transparency around best execution oversight, which hopefully will arm the buy side with more information and control.
We’re definitely staying tuned to the market structure developments in the U.S. While there remains uncertainty about the current proposals, there is potential for significant impact to some key players in the space. We must try to anticipate how that might impact our clients.
Longer term, with the execution strategy function becoming increasingly technical, I think we’ll continue to notice a natural shift of early career technical talent across industries. It will be interesting to see how temporary and/or permanent work-from-home and hybrid protocols in finance affect the early career talent pipeline in the space.
