Callum McPherson, head of dealing at Evenlode Investment, discusses the firm’s plans to overhaul its best execution framework this year to better measure dealer performance and trade variability. He unpacks how his team of dealers and portfolio managers collaborate on the desk to better inform trading and investment decisions, particularly in volatile, low-liquidity market conditions.
McPherson also unpacks how he sees the trend of growing concentration at the closing auction evolving and how his dealing team interacts with liquidity at the close.
Additionally, in this episode, the head of dealing looks at ways to minimize market impact in increasingly fragmented markets and unpacks his views on the launch of near 24-hour trading this year and what that could mean for 2025 market conditions.
Full Interview
Jo Gallagher Welcome to Trader TV This Week, your insight into how trading desks can prepare for the week ahead. I’m Jo Gallagher. Today I’m joined by Callum McPherson at Evenlode Investment to discuss the main topics and events leading this week. Callum, welcome to the show.
Callum McPherson Hi Jo, thanks for having me.
Jo Gallagher Tell us, what is your desk setup and how do your dealers and your portfolio managers work together, particularly in the context of a volatile market environment?
Callum McPherson Yeah, so we’ve got two dealers and one apprentice, and we sit right by the five portfolio managers and the wider fund’s teams. We’re quite small company. So we actually all sit in one open-plan office. But I feel like irrespective of the size of your firm, you can emulate that setup if you wanted. And the set up together with a collaborative and collegiate culture can only be beneficial to your clients. The dealing team actually look after one of the ten risk metrics that each investable company has and that liquidity risk score has actually led to us not investing in some companies or kept the maximum position size to just 1% because of how difficult it could be to trade in a more volatile, low liquidity market such as the one we’re in now. This open dialog and back and forth is even more important between the dealing team and the PMS. We’re better able to inform them of market events, volumes, IOIs. There is back and forth discussing how long a certain ticket might take without market impact, or how a trader’s performing against a benchmark, especially in a more illiquid stock and I see it as an important part of the investment process.
Jo Gallagher And so how do you go about measuring trader performance, and do you see that changing over the course of 2025?
Callum McPherson Yeah. Overall we’re looking to improve our analysis and this year our best execution framework. So pre-trade is the obvious place to start. Our EMS (execution management system) has got a built in an expected-market-impact model and we could certainly start there. We were also considering other options. Another area we’re looking at is benchmarks. We’ve got one overall benchmark that we use for all trades and that’s interval VWAP. But sometimes that interval is seconds and sometimes that interval is days. So would it be more appropriate to use a different benchmark for different subsets of trades. So very quick highly liquid trades. Maybe we could use Arrival. If we’re using a dark algo aggregator, maybe a liquidity sourcing metric would be useful. The market landscape’s fragmented and ever-changing. We’ve got SIs, dark volume caps, periodic auctions, the rise of passive and the dominance of the close. In this environment that’s so complex, it doesn’t feel very fair to use one very broad metric to judge our dealing team by. We’re still looking to measure the same thing, minimizing market impact, but just in different ways.
Jo Gallagher And how do you go about minimizing market impact in this current trading environment?
Callum McPherson Yeah, it primarily comes down to liquidity sourcing. So how can we wrap this trade ticket without moving the price adversely? And a good place to start would be checking large-in-scale thresholds. Then you could waive and defer pre- and post-trade reporting. There are also SIs and periodic auctions, they are great liquidity-discovery tools. We’ve seen both grow as a market share over the years and I could see that trend continuing. It’s a question without a simple answer, and it seems to get harder as the ways to trade increase. We’ve got so many venues and order types. Another one was added in December, SpainAtMid, and this increased fragmentation, lifetime high levels of market concentration, and low liquidity during the continuous trading has led to the close dominating. Over 30% of the day’s volume, now is trading in the last five minutes, and lots of firms are using that to minimize market impact. This year, we’re going to see the launch of near 24-hour trading as well. So that’s further going to draw out liquidity, potentially increase spreads, and add even more complexity.
Jo Gallagher You mentioned concentration at the close, which is a really important topic for our audience. How do you interact with this kind of liquidity, and how do you see this trend of growing concentration at the close evolving?
Callum McPherson When I started trading in 2015, the close was roughly 10 to 15% of the volume. So a decent chunk. But now it’s nearly 40%, especially in the UK, small or mid-cap. It’s a global multi-year trend, but we see it more pronounced there. And we think there’s a couple of reasons for this. The close is used as a strategy now, so it’s the only time of the day when a diverse range of market participants all come together to do roughly the same thing. And we’ve also seen the rise of passive flows as a percentage of the market. And they tend to concentrate around the close as well as a large and growing percentage. We talked earlier about market impact. I think that’s the key driver. If there’s lots of liquidity around a certain point of the day more trades are going to be allocated, then it’s a bit of a snowball effect. In terms of the industry and ourselves adapting, we’ve seen a number of algo providers enhancing their close algo, whether it’s dynamic participation or better prediction at an uncrossed price. VWAP algos are now allocated a greater proportion of that volume curve to the close. It’s clearly an area of focus for some firms, an important part of the day and in 2025 I can see that growing.
Jo Gallagher Thank you, Callum, for your insight and of course you for watching. This has been Trader TV This Week.
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