[ A L G O R I T H M I C
T R A D I N G
are seeking professional assistance
from their brokers. Similarly, while
algorithms have become highly
commoditised, banks have been
forced to seek new ways to make
money and execution consulting is
a way to get the most out of the ex-
pensive professionals they employ.
Similar factors that seem to be
driving where algo providers invest
their resources are also impact-
ing what the buy-side prioritises
when choosing its algorithms. To
demonstrate just how quickly this
change in attitude is happening,
this year the area which topped Fig
2 was “consistency of execution
performance” which was one of
the lowest priorities back in 2015.
Again, a regulatory focus on ensur-
ing the buy-side achieve best exe-
cution from their clients is altering
industry behaviour and increasing
the need of firms to develop a
more consistent and professional
approach to their trading activ-
ity. Reducing market impact has
always been a highly valued feature
of algo usage and is becoming even
more important it seems, with
13.9% citing this as their reason for
using algorithms, while increased
trader productivity, which dipped
in 2016, has returned to being one
of the key reasons to use automat-
ed trading.
Areas of declining significance
include the ability to trade at
speed. While 7.1% cited this as their
main reason for using algos in 2015,
just 5.8% think it important in 2017.
This perhaps reflects technological
advances meaning that, in most
instances, the speed at which algo-
rithms can help trade has reached
its apex. The benefits of internal
68
TheTrade
Spring 2017
S U R V E Y ]
crossing have also fallen down the
priority list, with just 7% citing it
this year, up from 4.4% last year
but down from 9.2% in 2015. As the
main vehicles of internal crossing,
broker crossing networks (BCNs),
are to be banned under MiFID
II and following several scandals
relating to these dark pools in
recent years, it may be the buy-side
is less keen to trade internally via
their broker. It’s also worth noting
that European legislators reject-
ed internal crossing on a BCN
as something that is potentially
incompatible with the spirit of the
best execution rules.
Client consolidation
A breakdown of the average num-
ber of providers used by asset man-
agers of varying sizes reveals one
undeniable trend, that most firms
are using less algo providers than
they were in the past. Mid-sized
firms with between $10-50 billion
of assets under management have
increased their average number of
algo providers since 2016, but only
a slight rise from 3.75 to 4.07, while
some very small fund managers
saw a bigger increase from 1.12 last
year to 2.2 this year.
So what can we garner from
this information? Buy-siders
interviewed by The TRADE in
recent years have often said they
are looking at rationalising their
broker lists and cutting down on
their broker relationships. There
are a number of commercial and
regulatory reasons why this could
be attractive, not least to cut down
on the technology burden of poten-
tially connecting to myriad broker
technology platforms.
The top 10
The TRADE would like to thank
all of the sell-side and buy-side
institutions that took part in
this year’s survey. As always,
we encourage as many firms to
take part as possible and to get
their clients involved. Our top 10
of providers by responses shows
that both Societe Generale and
Kepler Cheuvreux put in that
extra effort this year to elevate
themselves above the compe-
tition here. We look forward to
hearing you responses to our
next survey in 2018, which will
hopefully reveal some early
trends of the post-MiFID II era.
Provider
Ranking by
response rate
Societe Generale
1
Kepler Cheuvreux
2
BAML 3
UBS 4
JP Morgan
5
Exane BNP Paribas
6
Credit Suisse
7
Morgan Stanley
8
ITG 9
Citi 10
But at the same time, we are also
seeing many brokers choose to
focus more on their most profitable
accounts. Most recently, Deut-
sche Bank announced it would be
cutting down its client numbers
quite significantly. The reasoning is
that only around 20% of a brokers’
clients are truly profitable, the rest