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Asset Management, noting a broad-based increase in
transparency.
“The buy-side has had to grow up. In the past, there
was a tacit understanding that the sell-side would
supply infrastructure and other execution-related
services. Today, if you want it, you pay for it.”
Sales traders have had to change just as much
as their buy-side counterparts, according to Mark
Goodman, president of UBS MTF: “Today’s electronic
sales trader helps the client to navigate the market,
advising on how to get the best outcome. This role was
only just emerging in 2010, when the priority was just
getting the trade done,” Goodman observes. “A strong
relationship is not going to get broker A the business
if the data says broker B can get a better outcome for a
particular order.”
Accordingly, provision of data, analytics and other
decision support tools is as central to serving the
buy-side today as access and liquidity. Progress has not
always been smooth. In an era of low margins and high
transparency, it is harder to justify the more labour-
intensive services still valued by the buy-side, such as
research, market colour and capital commitment.
Highly-automated central risk books have been
developed by larger brokers, whilst some buy-siders
are paying high-touch prices to maintain access to
sector-specific insights, despite executing via low-
touch channels. As such, today’s sell-side service
model is based on execution choice and support.
Known primarily for its buy-side liquidity pool,
Liquidnet’s offering has expanded over the decade,
for example, encompassing a broad,
flexible set of tools.
“We may be seeing the emergence
of a mid-touch sell-side model, where
trader expertise and experience in
certain sectors is allied with services
that provide insight through data-
driven analytics,” says Jackson. “And
as buy-side desks reengineer their
processes to achieve better outcomes,
we need to have the skills and
analytics to support them.”
Revolution
If the central story of the decade is
one of buy-siders levelling up with
brokers and HFT firms, enhancing
technology and skills to improve
the efficiency and accuracy of their
trading activities, two caveats are
necessary.
64 // TheTRADE // Spring 2020
“Today’s electronic
sales trader helps
the client to navigate
the market, advising
on how to get the
best outcome. This
role was only just
emerging in 2010,
when the priority
was just getting the
trade done.”
MARK GOODMAN,
PRESIDENT, UBS MTF
Schroders’ Dalley insists the
human element is still important,
from generating liquidity in
mid-market names to observing
etiquette to preserve long-term
relationships. At Pictet, James
says the data revolution has barely
begun.
“We won’t recognise the front
office in three-to-five years’ time.
We might not have seen much
change yet, but the hiring of data
scientists is the start of a journey of
discovery. Traders will increasingly
oversee trading operations,
becoming portfolio strategists,”
he says. “If one considers the
fundamental changes in how
investment ideas are generated,
it’s clear that the old model is dead
and we’re now in an exciting new
phase.”
Some things changed even less.
Despite MiFID II’s measures to
bring more trading back onto
lit trading venues, off-exchange
volumes have stayed remarkably
steady. The battle between
exchanges and brokers that first
opened the door to HFT goes on.
Barely a week after Sarao finally
learned he would not serve jail
time, the European Securities
and Markets Authority unveiled
proposals to reform MiFID II.
Plans to restrict dark trading and
periodic auctions and increase
SI pre-trade transparency are
designed to ease the introduction
of the consolidated tape, still much
desired by the buy-side.
But they are also seen as a
response to political dissatisfaction
at MiFID II’s failure to boost
on-venue volumes. As Rosenblatt
Securities noted, “Exchanges on
the continent will likely push for SI
restrictions and further limits on
dark trading, while banks and buy-
side firms will fight to keep a more
diverse competitive landscape.”
Plus ça change!