THETRADETECH DA I LY
in-depth
THE OFFICIAL NEWSPAPER OF TRADETECH 2019
Trading venues
Brokers leading the next
generation of algorithmic trading
THE TRADE’S 2019 ALGORITHMIC TRADING SURVEY FINDS THAT BROKERS ARE STEPPING UP TO THE PLATE IN THE POST-MIFID
II LANDSCAPE TO PROVIDE CONSISTENT EXECUTION TO LONG-ONLY BUY-SIDE FIRMS THAT ARE MORE KNOWLEDGEABLE AND
DISCERNING THAN EVER BEFORE.
A
s end users become more comfortable and knowledgeable about the al-
gorithms they are using, and indeed in some cases placing at the centre
of their trading strategies, brokers and banks must stay ahead of the pace
of change and provide consistent results to their clients. The results of The
TRADE’s 2019 algorithmic trading survey for long-only buy-side firms
The performance scores for algo providers in this year’s survey shows that
brokers and other algo providers have begun stepping up their game, both
in response to new obligations under MiFID II and the exact requirements
laid out by their buy-side clients.
Overall, the average score from long-only respondents for the survey
this year was 5.74 - a noticeable increase on the average score of 5.60
in last year and a return to the levels seen in 2017’s survey prior to the
introduction of MiFID II. This trend is evident across almost all of the
fifteen functional categories under review, with all but one category show-
ing year-on-year improvement, with many areas of performance again
reaching, or exceeding, the 2017 results. This could be attributed to a less
critical approach from buy-side algo users, however it is far more likely
that algo providers have successfully adapted their offering and approach
to the new trading landscape.
The highest score achieved in this year’s survey was in the customer
support category with 5.95, while there were high scores in the improving
trader productivity, speed, anonymity, and ease of use categories. The
areas of performance that showed the greatest improvement year-on-year
were in improving trader performance (up 0.29 from 2018), speed (up 0.31
from 2018), cost (up 0.23 from 2018) and price improvement (up 0.21 from
2018). The two new performance categories introduced in this year’s survey
showed respectable scores – 5.68 for data on venue/order routing logic or
analysis and 5.58 for algo monitoring capabilities.
Long-only firms continue to adopt and utilise algos for the same reasons
as they have done historically, despite the change in the regulatory land-
scape, according to Figure 2. The importance of execution performance
consistency, improving the performance of traders and the ease of algo
use were again some of the most popular reasons among respondents for
the use of algos – the ease of use factor in particular continues to be more
important for users, suggesting that the buy-side are looking for technology
that simply works and allows them to concentrate on their daily workloads.
However, it is the consistency of execution performance that continues to
be the overriding reason for buy-side firms to use algos as part of their trad-
ing operation, accounting for 11.25% of responses this year, perhaps unsur-
prising given the desire for reliability during a year of regulatory upheaval.
On average, long-only firms engage with between two and three algo
providers, regardless of AuM, a marginal decrease on last year. Only those
long-only respondents managing either $0.25-0.5 billion or more than $50
billion recorded consistent use of the number of algo providers as last year
(2.20 and 4.45 respectively); clearly those on the buy-side with the largest
pool of resources to work with are not in any hurry to reduce their options
when it comes to algorithmic trading.
The evidence for algo provide consolidation is starker when it comes to the
average number of algo providers used by long-only respondents regardless
of AuM. There was a significant drop of just over 10% for firms choosing to
use five or more providers in this year’s results, while there was a similar
percentage increase of firms using just a single provider. The two extremes
of the scale accounted for 57.43% of responses, indicating the buy-side
firms are moving towards the polar opposites of the scale now that focus
has shifted away from regulatory matters; buy-side firms are either looking
for a wider range of options when it comes to algo trading or have refined
their choices to a provider they know can deliver.
In terms of algo providers, brokers performed significantly better than
their banking counterparts in the long-only survey, with only one bank
earning an average score of over 5.50. Clearly the year after MiFID II imple-
mentation has been well spent by brokers that have taken the opportunity
to step up their product offering to meet client requirements, while banking
institutions have struggled to do the same, with some recording significant-
ly worse scores than last year.
There is clearly much work for some algo providers then to catch their
peers, while for others that have scored well this year the focus will be on
bringing new innovations to the algo trading table that will push technology
boundaries and improve results for end users. The question going forward
is who will be among those providers pushing the envelope and who will be
patching up the leaks as the industry continues to move further away from
its recent regulatory concentration.
The full 2019 algorithmic trading survey was published in the Spring 2019
issue of The TRADE.
Issue 1
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