and lower transparency , there will be a relatively lower level of automation .
“ If anything , the proportion of algo trading we have may be too much . The commission pool that we pay our brokers has been shrinking year-on-year for years . As I recall , 2010 was the last time we had an uptick . A number of years have seen double-digit drops . Meanwhile , our AUM has not decreased so it ’ s basically a lower blended rate , and perhaps a little less active trading . I don ’ t want the service from the Street to fall as a result of lower commissions being paid , and I don ’ t think we ’ ll be using more algos .” Kent Rossiter , head of trading Asia , Allianz
Global Investors , “ The Hong Kong way ”, The Buy-side Perspectives , issue 4
Impending European regulation and consolidation of trading desks , to handle multiple asset classes , are driving the need for the buy side to evaluate new or additional EMS technologies . Where resources are available , K & KGC reports from Alpha Trader Forum buy-side debates in London , Boston and New York in 2016 , that the heads of trading would be satisfied with a central OMS with the addition of a best-in-class EMS for each asset class . Only a few well-funded large asset management firms choose to have an entirely separate OMS infrastructure between a ) listed equities and b ) fixed income and foreign exchange . The buy side are positive that EMS SORs are helpful in the design to automate order handling to allocate resources efficiently within the trading desk . There will always remain exceptions where the human trader ’ s manual intervention is needed .
“ Aberdeen Asset Management experienced lower market impact on trades that were executed electronically . But even then , the role of services provided by brokers can be an issue . “ It is the routing that is the problem ,” added Godonis “ Too much trading to a particular venue for example , will alert the HFTs where we are .” “… the emphasis on cost-cutting means that some smaller brokers white-label smart order routing technology from larger firms , but in that case the buy-side trader may end up paying a larger fee than if they had just gone to the original broker behind the technology . It is always worth checking this first when using a local broker ….” Anthony Godonis , head of trading - Americas , Aberdeen Asset Management , “ Less is more ?”, The Buy-side Perspectives , issue 5
SOR statistics from K & KGC Buy-side Perspectives algorithmic trading research ( to support answering question 2 ):
• In 2015 , five out of 40 ( 12.5 %) of the buy side reported use of Smart Order Routers . Five different brands were mentioned which indicated a fragmented approach to the selection of SOR brands .
• In 2016 , five out of 16 ( 31 %) of the buy side reported use of Smart Order Routers . Four different brands were mentioned which indicates that there is still a fragmented approach to the selection of SOR brands . The lower response rate to the 2016 survey , in addition to a low level of buy-side interest in discussing the topic trading algorithms at the Alpha Trader Forum , also indicated a significantly lower level of interest among the buy-side to search for alternative algorithmic brands compared to previous years .
Buy-side response to question : To what extent will the evolution of fixed order handling drive increased straight through processing in execution ?
Out of 40 senior and heads of buy-side trading participating in K & KGC ' s algorithmic trading research in the end of 2015 , 12 buyside traders reported that they use varying forms of STP where the benefits of standardisation through Fix Protocol were also mentioned . STP has not been called out by the buy side as a major challenge or priority area for further peer debate .
Buy-side response to question : Do traders need to spend more time developing an ECM liquidity approach for large in scale block orders ?
“ When I first started trading , any significant flows came from a merchant bank or major asset manager , who had the block liquidity you needed . Today , participants are much more varied and you are unlikely to know who you are transacting with .” Paul Squires , head of trading , Axa
Investment Managers , “ A new dawn for the buy-side ?”, The Buy-side Perspectives , issue 5
The buy side are continuously evaluating multiple alternative avenues for block trading . The majority of traders in Europe and the USA are generally happy to trade through independent MTF / ATS as an alternative to broker dark pools . More independent dark pools are entering the market with a focus on minimising market impact even further . But based on K & KGC block trading research in 2016 the majority of the buy side still believe that some legacy dark pools are already providing the needed functionality .
December 2016 www . buysideintel . com
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