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Upping the algo ante
The arrival of MiFID II has shaken up capital markets and algorithmic
trading has been no exception to this trend. The 2018 algo survey
provides a glimpse into where hedge funds are setting their
priorities in the early days of the new regulatory landscape.
H
edge funds have shown far
higher levels of expec-
tations from their algo
providers in 2018 as the realities
of the new electronic trading
environment under MiFID II bed
in. Hedge funds were asked to rate
their algo providers across a series
of metrics and capabilities within
the first few weeks of the new trad-
ing landscape under the MiFID II
regulatory regime.
Although these may be early days
in the grander scheme of the Mi-
FID II era, the results of this year’s
survey indicate that hedge funds
ships further down the road.
The scores metered out by hedge
funds in Figure 1 show both this
and last year’s ratings for algorithm
performance across 14 different
categories and it’s clear to see
that heightened expectations are
already making an impression on
how algo providers are viewed on
the buy-side. The overall score for
algo performance this year was
5.47, which, while a respectable
score in the face of a changing trad-
ing landscape, was still lower than
last year’s average of 5.68.
There were decreased year-on-
“As with their long-only counterparts, hedge funds
have shown far higher levels of expectations from
their algo providers in 2018 as the realities of the
new electronic trading environment bed in.”
are already targeting key areas of
algo functionality for review which
could go some way to informing
strategies and provider relation-
72 // TheTrade // Summer 2018
year scores in 12 of the 14 perfor-
mance categories reviewed, with
the only increase seen in the execu-
tion consulting category (up from
5.35 to 5.59), which is to be ex-
pected given the sell-side’s intense
focus on this attribute in the run-
up to, and hopefully beyond, the
introduction of MiFID II. As was
the case in the long-only section of
this year’s algo survey, the highest
score of any category was awarded
for customer support, with a rating
of 5.71, although this represented
a 0.29 decrease year-on-year, so
there is still work to do in this
space for algo providers according
to their hedge fund clients.
Elsewhere there were decent
scores in the anonymity (5.72), ease
of use (5.76), dark pool access (5.6)
and smart order routing capabil-
ities (5.57) categories, with the
latter facet recording a consistent
year-on-year rating from hedge
fund respondents. The most signif-
icant areas where algo providers
require improvement according to
this year’s hedge fund respondents,
were in the crossing (5.07), price
improvement (5.22) and customis-
ation (5.23) categories. The results
suggest that hedge funds are