A heavier regulatory burden on money managers, razor-thin margins and rapid technological developments in trading are driving many to cut costs and hire outside firms to handle their day-to-day trading. The pace of demand has accelerated this year in particular as asset managers feel the pinch following the introduction in 2018 of the EU Markets in Financial Instruments Directive (MiFID II) which slapped more onerous paperwork on them.
Outsourcing hasn’t historically been linked to front-office activities and the buy-side trading desk, but the notion of outsourcing trading and execution is starting to turn heads at asset management firms, both large and small. Industry headwinds and changes in market structure due to increased regulation have seen the buy-side evaluate the tangible benefits of outsourced trading, while the future of the industry remains somewhat uncertain.
Investment managers need to ask the right questions when engaging an outsourced trading firm. Here are four key considerations that will help to identify the most comprehensive and compliant offerings.
Broker dealers and asset managers are undergoing a period of significant and radical change, largely driven by regulation, advancements in trading technology and the impact of passive management. As if these challenges weren’t enough, equity commissions are down 45% since 2009. In no uncertain terms, players on both sides of the fence are being forced to rethink past practices.
To a growing number of asset managers, keeping a trading desk isn’t worth it any more. There are the salaries, data feeds and computers. There are new technologies and sources of liquidity from dark pools to systematic internalizers to keep up with. Then there are the reams of rules -- perhaps you have heard of MiFID II.
Exoé, Linear Investments and Tourmaline Partners may not be household names but they are quietly reshaping the way asset managers trade. Providers of outsourced trading such as these are enjoying fast-rising revenues and their prospects are sunny. One reason: an opportunity to venture deeper into fixed income from their traditional home of equities trading. “There are more and more firms talking to us about fixed income and how that would work,” says Chris Hurley, director of institutional sales at Dallas -based Capital Institutional Services, another provider of a service that allows firms to hand over some or all of their trade execution to an outside desk.
A recent survey of Traders Magazine readers, representing a broad spectrum of buy-and sell-side professionals, found that 28% work for firms that have either already outsourced some of their trading and back-office operations or are actively considering doing so. That may not sound like a big number, but given outsourced trading’s longstanding reputation as a niche service for hedge funds only, it qualifies as a significant figure.
Tim O’Halloran, Managing Director at Tourmaline Partners, answers questions on the global impact of MiFID II and the rapid growth of outsourced trading in this interview with HFM Technology.
A new Greenwich Associates report, Outsourced Trading: Helping the Buy Side Improve Execution and Enhance Operational Efficiency investigates outsourced trading and the perception of U.S. institutional asset management and hedge fund professionals toward this growing industry.
Institutional asset managers are increasingly turning to outsourced trading desks to meet the challenges of heightened best execution requirements, market structure changes and shrinking commissions, a new report by Greenwich Associates reveals.
Outsourced trading business Tourmaline Partners has hired former SAC Capital trader Seth Hoenig and ex-HSBC and JP Morgan senior trader Aidan Toomey as managing directors.
More and more buy-side firms are re-examining ways to improve their workflow and operational efficiencies as market regulations like MiFID II eliminate many past practices such as research bundling and soft dollaring.
Technology and innovation continue to disrupt industries and businesses around the world, and the investment management industry is no exception. Regulation – in the form of MiFID II – now adds a new challenge to an industry already wrestling with technological change in both equity trading and research. In a conversation with Traders Magazine, Tourmaline Partners CEO Aaron Hantman and Managing Partner Tim O’Halloran discuss how these trends are impacting their business.
(Bloomberg) -- Christopher Sarkis has joined Tourmaline Partners LLC as a managing director in the firm’s institutional equities group. Sarkis was most recently the head of institutional equity sales at Rafferty Capital Markets for five years. Prior to that, he worked in the institutional equity group of Cantor Fitzgerald for 10 years. He joins Tourmaline after a period of “significant global growth” for the firm over the past year, according to Chief Executive Officer Aaron Hantman.