The TRADE 2018 APAC Algorithmic Trading Survey | Page 4

[ A PA C
A L G O R I T H M I C
T R A D I N G
S U R V E Y ]
Figure 4: Number of providers used (% of responses)
2018 2017 2016 2015 2014
1 55.48 20.75 33.01 24.39 23.93
2 8.22 16.98 15.95 19.51 22.22
3 11.64 18.87 9.97 17.07 11.15
4 10.27 13.21 18.04 14.63 5.98
5 14.38 30.19 23.02 24.39 36.75
ease of use (3.26%) factors, there
was a noticeable increase in those
using algos for lower commission
rates (a 3.26% increase year-on-
year) and execution consulting
(2.72%).
When it comes to the number of
algo providers buy-side firms are
using within their APAC opera-
tions, there are some clear results
in evidence this year, as seen in
Figure 3. Larger buy-side firms
(those managing more than $10 bil-
lion) have cut down their average
number of providers compared to
recent years, going from as many
as 4-5 algo providers, to just 1.58
for those managing between $10 to
$50 billion, and 2.41 for those with
more than $50 billion in assets
under management.
This trend is by no means
restricted to the APAC region, as
buy-side firms globally have begun
to cut down the number of tech-
nology vendors in recent years –
including algo and EMS providers
– they engage with, as regulatory
and operating pressures continue
to squeeze cost margins.
There was further consolidation
of algo providers among small
and mid-cap respondents, with
the exception being firms with
between $.025 and $0.5 billion,
which on average are using almost
four algo providers, an increase of
92 // TheTrade // Winter 2018
1.17 on last year’s results. In years
passed it was the well-resourced
buy-side firms that would have a
stable of algo providers to choose
from, whereas the smaller firms
displayed greater prudence; that
ratio is now reversed, and it will be
interesting to see how it unfolds
going forward.
The extent of this algo provider
Methodology
Survey respondents were asked to
provide a rating for each algorithm
provider on a numerical scale from
1.0 (Very Weak) to 7.0 (Excellent),
covering 12 functional criteria.
In general, 5.0 represents the
‘default’ score of respondents. In
total more than 150 individuals
responded; almost 400 evaluations
were submitted; and 30 providers
were evaluated.
The evaluations were used to
compile the eight provider profiles
covering the major providers
based on responses received. Each
evaluation was weighted according
to three characteristics of the re-
spondent; the value of assets under
management; the scale of business
being conducted electronically; and
the number of different providers
being used. In this way the evalu-
ations of the largest and broadest
consolidation is evident in Figure
4, which shows the average num-
ber of algo providers per respon-
dent. Over half of respondents to
this year’s survey are employing
just one algo provider, down
almost 35% year-on-year, while
just under 15% of respondents said
they are using five algo provid-
ers. Meanwhile, around one in 10
respondents indicated that they
were using either two, three or four
providers.
Growing importance
The results of Figure 5 show just
how important algorithmic trading
has become to APAC buy-side
firms in recent years, with more
respondents than ever using algos
to execute their flows. The level
of firms using algos to trade more
than 40% of their flow rose con-
sistently between 2013 and 2016,
users of algorithms were weighted
at up to twice the weight of the
smallest and least experienced
respondent.
In arriving at any overall cal-
culations, the scores received in
respect of each of the 12 functional
capabilities were further weight-
ed according to the importance
attached to them by respondents
to the Survey. The aim is to ensure
that in assessing service provision
the greatest impact results from
the scores received from the most
sophisticated users in the areas
they regard as most important.
Finally, it should be noted that
responses provided by affiliated
entities are ignored and a few other
responses, where the respondent
was not able to be properly verified,
were also excluded.