K&KGC
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K E Y F I N D I N G S F R O M 2 0 1 8 H 1 AT F
Choices between Masters
and Jacks-of-all-trades in
the new equity market
The various types of block trading venues have evidently come
out as winners as a result of the post MiFID II market structure.
The buy side are generally expecting that MEP Markus
Ferber’s recent statement around broker preferencing in
periodic auctions is likely to result in an adjustment to support
improved price formation. A ban on such practices however is
not desired. The sell side are increasingly challenged in Europe
by the impact of the new market developments: fall off over time as it may be too expensive for the brokers to
sustain unprofitable relationships. Observing this trend with
a magnifying glass, K&KGC anticipate that large-scale brokers
with evidently heavy investments in machine learning and
other deep learning technologies will capture the electronic
low touch part of the market and those brokers maintaining
high service levels with experienced sales people will have a
better chance winning in the high touch part of the market.
• Larger buy-side firms have already started investing in algo-
wheel technology to reduce broker bias and as a basic form
of automation of low ADV trades to free up the trader’s time
for high touch trading. K&KGC’s buy-side community have
identified 3 suppliers of this technology to date and the buy-
side’s message to them is to integrate Machine Learning in the
next generation of algo-wheels to make them smarter and
responsive to market changes.
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In addition to trading more blocks with MTFs direct, the
buy side are generally trading a larger share of broker flow
algorithmically with lower execution fees.
Unbundling of research from execution has lead to a
higher scrutiny of what the buy side will pay for and who
they will pay.
There is a tendency among some of the buy side to start
evaluating to trade direct with certain Electronic Liquidity
Providers (ELP SIs).
Not surprisingly the net effects are already seen with the
increasing juniorisation of the sell side. Something that will
likely result in even less execution commission payments being
paid unless the sell side representative can add incremental
value to the trading desk. Listing what every buy-side trader
can see in the Bloomberg terminal at a morning call doesn’t
necessarily add any value to the buy-side trader. With a battle
between sell-side firms to remain on top, the buy side
are tightening their due diligence process and constantly
evaluating how new scenarios are adhering to the
inducement rules (hear K&KGC's update at our next equities
ATF - see dates below). The buy side are challenged with the
paradox balance between higher demands of due diligence of
their broker selection at the same time as many counterparties
are contributing with less value. The buy side therefore feel
inclined to maintain their long tail of ad-hoc specialist broker s
in their authorised counterparty list but naturally they may
Despite a vast amount of data, the output of TCA tools is under
scrutiny. With a lack of standardisation, huge differences in
pre-trade results between different providers is tarnishing
their credibility. How is the buy-side trading desk
supposed to know which brand to trust when the results
are unsystematic?.
While there are both interesting and new technology
developments on the market, the buy side are currently also
frustrated with their chosen OMS vendors often being the
show-stopper for adopting new innovations. So what
happens next? The discussions are to be
continued so stay tuned….
SAVE THE DATE - EQUITIES ATF'S:
- 18 th ATF London (9 th October)
- 14 th ATF France (16 th October)
- 10 th ATF Dach (18 th October)
- 10 th ATF Nordic (15 th November)
- 7 th ATF Global Summit (6 th February 2019)
Summer 2018
www.buysideintel.com
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