The TRADE 62 - Q4 2019 | Page 27

[ O P I N I O N | Another anonymous outsourced trading provider responds to the original editorial opinion: I am surprised that the author suggests that outsourced trading is going to be a cost to the investor in funds, rather than a cost borne by the management company. This is surely a matter for the asset management firm to handle, as are any costs they incur. The buy-side managed to incorporate research fees brought on by MiFID II, so I am sure they can manage outsource trading fees. As an outsourced trading provider, we intend to work on a flat-fee basis that can be applied however the asset manager sees fit. The author gives an example showing how an outsourced desk may undercut the execution rates of an internal trading desk by working on reduced margins, but with poorer execution. This is a basic way of looking at it. The outsourced trading desk is, of course, looking to make a profit but by offering to save the asset manager the significant cost of maintaining a trading desk, that asset manager should in turn be able to pay a fee that both saves them money and ensures high quality execution. I hear the ‘market correction’ argument often, and my response is always the same and there is never any argument. Whether the outsourced trading firm is handling multiple trades or the asset managers are handling each of those trades, it is going to happen anyway. But surely it can be better managed by one firm with extensive market insights before going to the market as several different firms all fighting each other in the street? Provided the execution is high- quality, the outsourced trading firm can do a better job. Again, like the market correction argument, handling errors will be there whether they are O U T S O U R C E D T R A D I N G ] made by an outsourced trading desk or internal trading desk. There are, of course, strict rules about compensating funds for trading errors, and processes for establishing the why, where and what caused the error, and how to stop it from happening again. These would be part of the contract when appointing an outsourced trading firm. When the author highlights that it is not possible to outsource the obligation to demonstrate there is a process in achieving best execution, I would say it is indeed possible. As best execution is possible to demonstrate, this is subjective and relies upon the traders’ skills. An outsourced trading firm with a robust best execution and trade order priority policy in place, which has experienced traders on the desk, can achieve the best result for all clients. Especially as they have no axes, no affiliation to any fund and are not compensated by the person sending the order, which is exactly in line with what MiFID II is trying to achieve. Issue 62 // TheTradeNews.com // 27