Over the past decade, the trading landscape has transformed dramatically for market participants across all sectors and asset classes. For the buy side, continued electronification of trading has caused technology costs to rise considerably, and head counts on buy-side trading desks have contracted correspondingly. Although the largest banks and brokers have the operational scale and infrastructure needed to keep up with this pace of change, many on the buy side do not have the same resources at their disposal. At the same time, many buy-side firms are actively seeking access to liquidity in new markets or instruments (in order to grow or just to keep up with the competition), and that requires additional spending as well. Throw in additional regulatory pressures, such as the new trade reporting requirements for European firms under MiFID II, and it becomes clear that operational complexity and cost have become a significant burden for institutional investors.
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.
More than a year has passed since the introduction of new best execution requirements under MiFID II, but for many buy-side ﬁrms the diﬃculties and costs of complying with these rules have only continued to grow. Of course, the intention behind MiFID II is to create additional safeguards in order to protect the market and its participants from a repeat of the 2008 ﬁnancial crisis. The architects of the Directive may even have expected that the new rules would be relatively straightforward to implement, particularly with many instruments having already been pushed onto lit, centrally cleared exchanges under EMIR and MiFIR. But we now know that the new requirements have created an additional layer of complexity for most market participants, not just those few that may have been failing to achieve best execution in the first place.
In the US, a buy-side firm outsourcing its trading desk to a specialist provider isn’t new; but in Europe, it’s been less common, until recently. In this Financial Markets Insights video, Mike O’Hara of The Realization Group talks to Aaron Hantman, CEO, and Andrew Walton, Head of European Business, at Tourmaline, one of the leading providers of outsourced trading solutions to the buy side, about the drivers behind the trend and which functions are appropriate for outsourcing.
Buy-side firms can improve execution and save costs by outsourcing all, or parts, of their trading operations. Andrew Walton, head of European business at Tourmaline Partners, shares his experience and observations.
As implementation of The Markets in Financial Instrument Directive II (MiFID II) draws near, conventional wisdom is that few industry players – both broker-dealers and investment managers – are fully prepared to meet its requirements. In our second of two articles, we look at the more concerning fact that there now seems to be near universal agreement that the regulation will mean there will be less money spent on investment research and less investment research produced—an outcome that is not good for anyone.
As implementation of European Union’s Markets in Financial Instrument Directive II (MiFID II) draws near, unbundling - the separation of research and trading - is taking greater hold. In the U.S., we have seen a number of mergers, closings and downsizings over the past year as the sell-side positions its business accordingly.
Those who have been in the financial services industry since a time before acronyms like MiFID were in vogue likely recall a time when building a ‘financial supermarket’ was the new strategic plan. In the 1990s, combining brokerage, banking and insurance companies under a single umbrella to provide one-stop shopping for all things financial was heralded as the future of our business. Introduce a repeal of Glass-Steagall and it was off to the races.