Planning for the future : are you prepared ?
In this series of articles , Citi encourages and welcomes debate on innovation and the future evolution of trade execution . Each article will be followed by an editorial response providing a messaging board for professional feedback and analysis .
Order handling and algorithmic trading in the post-MiFID II world
At Citi , we have written at length on the increasing standardisation in execution order handling and how this is driving a bifurcation in trade flow management , with innovation and technology providing a framework for increasing ‘ straight through process – STP automation ’ of standardised order types and flows . This is counterbalanced by an ‘ exceptions based approach ’ to block order handling and strategic trading situations including transitions , corporate events and special situations .
This balancing of the workflow will overall help to assist operational efficiency and process management in an environment of ongoing industry assets under management ( AuM ) growth including rising focus on margin compression and low cost execution management .
During the last 5-years Global managed AuM has grown at an annualised 4 % rate adding approximately $ 1 trillion per year across the industry . Equally , asset concentration has increased with the top 16 managers now accounting for 40 % of Global AuM representing a ‘ mega trend ’ industry theme . Increasing AuM gravitating towards fewer managers alongside rising passive indexation has perpetuated a focus on centralised execution efficiency ( central dealing and buy-side technology innovation ) subsequently cascading across the industry with OMS / EMS technology innovation .
In the future , Citi continues to foresee a rising focus on low cost equity / equitylinked products with passive AuM rising from 30 % of publically traded AuM to 50 % supported by retail fund investors and the ongoing low yield environment . A rising focus on lower margin products and higher operational business costs associated with MiFIDII compliance will represent a significant challenge in the future industry paradigm . Whatever the
16 www . buysideintel . com October 2016