[ 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