[ M A R K E T
A N A LY S I S
list of concerns for asset managers,
trading technology companies are
slowly but surely emerging to pro-
vide such solutions to the buy-side.
Chief executive at Dash Financial
Technologies, Peter Maragos, has
seen this trend developing first-
hand. Dash provides a technology
platform offering full order routing
transparency, and Maragos says the
firm has seen considerable growth
in recent years, in large part due to
its transparency services.
“Prospects aren’t used to seeing
what we provide and it creates
real excitement,” Maragos claims.
“Order routing transparency has
become a genuine issue for the
buy-side. With regulations like Mi-
FID II looming and its global im-
pact becoming clear, transparency
and unbundling are more relevant
than ever to clients globally.“
He adds that in an environment
where the buy side’s performance
is as scrutinised as it is, being able
to fully control orders and gain
total, granular-lever transparency
into your execution is imperative.
Every basis point counts in terms
of execution quality.
Similarly, Clarke at Luminex,
which provides an alternative
trading venue for the buy-side also
with full routing transparency, says
there are technology firms in this
space that provide market-based
solutions to help the buy-side
interpret the complex, granular
data. However, as is often the case,
the cost of implementing such a
system can be one of the most in-
fluential factors for asset managers.
But in most cases it is a matter of
implementing the platform, system
or product.
“There is interest on the buy-side
and they want to know more, but
often price can be the ultimate
determinative. Some will say they
prefer to use the traditional meth-
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TheTrade
Autumn 2017
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ods to evaluate performance rather
than go into such granular detail,”
Clarke says.
In many ways, the buy-side could
do more to ensure brokers provide
full order routing transparency. In-
the system of bundled services
in place, and reports detailing
any major differences in trading
quality between brokers are indeed
a threat to that system. But once
brokers know they have to analyse
“We are left at the mercy of the analysis provided
by the broker and as buy-siders we can be very
skeptical of the data.”
DAN ROYAL, GLOBAL HEAD OF EQUITY TRADING, JANUS HENDERSON
terestingly the majority of brokers
are not unwilling to provide the
data, but the lack of resources and
nagging legacy systems at the ma-
jority of asset management firms’
means sell-side firms are often not
asked for the information.
Change afoot
The buy-side should be asking
their counterparts for full order
routing transparency, although the
sell-side is in many cases dictat-
ed by costs and under the same
technological constraints. McGrath
argues firms who claim to not have
the right technology in place to
deal with the often-overwhelm-
ing amount of data is not a good
enough.
“Over the past year since leaving
Schroders, I have worked with
several quite small FinTech firms,
like Dash Financial Technologies
for example, who have less budget
for technology than large invest-
ment banks, but are able to provide
full order routing information. Not
having the right technology is an
excuse; the reality is the data can
be provided if you ask the right
people the right questions,” he
says.
It’s an unholy alliance between
the buy- and sell-side, keeping
all unfilled orders the market will,
as it always seems to, find a way to
adjust.
Wesiberger says for brokers, it’s
a ‘knee-jerk’ reaction to any kind
of change whether technologically
or in general. The process is costly
and so it’s no surprise brokers are
in some cases fighting back. In
the event that accurate, statistical
reporting of order routing becomes
universal, “brokers who have not
invested in quantitative trading
technologies or the ability to
provide or source liquidity, stand
to lose an enormous amount of
business”.
Change is on the horizon. In
Europe, MiFID II’s unbundling
looks to prevent conflicts of inter-
est through rules around trading
inducements. The rules will tackle
the need for transparency in not
just trade reporting, but order
routing. Similarly, in the US last
year the Securities and Exchange
Commission (SEC) invited industry
comments on the idea of enforcing
rules which would require firms
to provide this level of granular
information. Regulation and the
buy-side’s increasing need for full
order routing transparency from
brokers, could see the issue come
to a head sooner than we think.