[ A L G O R I T H M I C
T R A D I N G
S U R V E Y ]
Quality not quantity
This year, The TRADE’s Algorithmic Trading Survey gives an
insight into developing industry trends in the final year before
MiFID II. The result reveal a flight to execution quality and
a rationalisation of broker and buy-side relationships.
T
his year’s algo survey –
celebrating its 10th year
- reveals an industry in flux,
with some fairly rapid transfor-
mation in the way long-only funds
use algos, what their priorities are
and which brokers they work with.
This probably doesn’t come as
much of a surprise as a mix of com-
mercial and regulatory pressures
are mounting for both the buy-
and sell-side and this is having a
knock-on impact for the securities
trader’s most important tool, the
trading algorithm.
The results of this year’s survey
were collected at a time when
firms had less than a year left to
implement MiFID II, which is ex-
pected to have a significant impact
on the commercial fortunes of the
investment banks and the extent
to which the buy-side will be able
to utilise trading in the dark and it
seems that many of these issues are
already starting to filter through
to the way buy-side traders think
about their algo strategy and bro-
ker relationships.
Beginning with the average
ratings the buy-side have given
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TheTrade
Spring 2017
their algorithm providers this year,
Fig 1 reveals some interesting new
developments in 2017. We can
see that both market impact and
anonymity have risen up the list for
long-only asset managers this year.
Market impact received the second
highest average score at 5.89 while
anonymity followed close behind
with the third highest average
score of 5.85. There are a couple of
potential reasons for this. Firstly,
many brokers have in recent years
been censured by regulators for
these fears. The second reason is
simply that the sell-side might just
be further refining their processes
to provide clients with their key
demands. Either way, it’s a positive
development for both sides of the
Street if client orders are seemingly
less prone to information leakage.
However, the area which received
the highest score was execution
consulting. A relatively new term
in the investment bank lexicon,
execution consulting is essentially
the process of helping buy-side
“Both market impact and anonymity have risen
up the list for long-only asset managers this year.”
failing to properly protect their
clients’ order information and for
indulging HFT firms over their
buy-side clients. The effect could
be that they are taking more care
to ensure they properly protect
client order information as much
as possible, due to pressure from
both clients and regulators. If that’s
the case, it seems they have been
somewhat successful in allaying
clients to better understand their
execution process and outcomes,
analyse all the transaction cost
analysis (TCA) data their receive,
and use that knowledge to achieve
the best possible execution. Again,
regulatory and client pressures are
thought to be largely responsible
here. Upcoming MiFID II rules
will force the buy-side to do more
to achieve best execution and many