The TRADE 63 - Q1 2020 | Page 76

[ A L G O R I T H M I C T R A D I N G S U R V E Y ] Brokers bolster algo access to dark pools and liquidity for buy-side The long-only results of The TRADE’s 2020 Algorithmic Trading Survey show that dark pool access remains a key focus for asset managers, as providers see largest jump in score in connecting the buy-side to dark liquidity. O n the whole, 2019 was a very good year for global equity markets. Passive investing and indexing continued to tick along while the major US indices recorded new highs—the year ended with three rate cuts in the US helping to fuel the largest gains since 2013. Likewise, European markets had their best year in a decade. Many of the fears worrying investors never realised— the global recession never arrived, trade wars didn’t deter investment, Brexit didn’t implode the market, and World War III wasn’t on the horizon after all. Taken together, a robust market, stringent best execution requirements, and improved decision support created a favorable environ- ment for algorithms. The average score of long-only survey respondents is 5.71 in 2020—a slight decrease from the 2019’s score of 5.74 (up from 5.60 in 2018). In 76 // TheTRADE // Spring 2020 2020, the most impactful features of algorithms are customer support and services, ease of use, dark pool access, execution consistency, and increased trader productivity (Figure 1). Sup- port services, which draw the highest score of 5.96, also attracted relatively high marks in 2019’s survey (5.95). Being able to get ahold of a broker supporting the algo suite is a top priority for the buy-side. Ease of use, a category that has been improving over the past three years, garners the second-highest mark of 5.92 (versus 5.89 in 2019) as technology becomes more user-friendly and streamlined, such as the automation of trades en- gaging algos that originated in order/ execution management systems. Dark pools continue to make their mark Dark pool access continues to be an important area for market partici- pants’ algo use. The largest jump in score is linked to this capability (5.90 in 2020 versus 5.74 a year ago). Bro- kers continue to offer a greater range of connectivity and provide access to liquidity as the number of dark pools and amount of dark liquidity continue to increase. Algos are being used more effectively to manage greater amounts of fragmented liquidity, and market participants are increasingly satisfied with the results. Execution consistency marks the second-highest jump in year-over-year scoring (5.81 in 2020 versus 5.75 in 2019), likely a consequence of calmer seas (e.g., the Cboe VIX averaged 15.39 vols in 2019 compared to 16.64 in 2018) coupled with improved decision support. Lastly, increased trader productivity receives a score of 5.80, down from 5.88 in 2019. While there is no doubt algos improve front-office productiv- ity, at a point, diminishing returns to