The TRADE 67 - Q1 2021 | Page 74

[ A L G O R I T H M I C T R A D I N G S U R V E Y ]

algos , presented in Figure 2 as a percentage of responses , differ between 2021 and 2020 . Overall , increases can be seen in seven areas of algo trading versus last year : ease-of-use , reduce market impact , lower commission rates , better prices , higher speed , customisation and pre-trade estimates . At the same time , decreases are seen in six areas : consistency of execution , trader productivity , greater anonymity , smart order routing , algo monitoring , routing logic . The emphasis seems to be on working orders at speed and with ease , and in a way that is cost effective . There is less interest on information leakage , execution consistency and trader productivity . It is clear that long-only funds of varying sizes are looking to at least two algo providers , with all AUM categories of long-only respondents reporting an average number of providers greater than two in the 2021 survey ( Figure 3 ). From a diversification and business-continuity perspective , managers are seemingly unwilling to place all of their eggs in a single basket and risk a provider outage . The smallest firms managing US $ 1 billion or less seem to be most comfortable with using approximately two providers , although the average number of providers is up in 2021 compared to 2020 for these smaller managers . Larger firms managing upward of US $ 1 billion are more likely to rely on three providers , though the average number of providers is down in 2021 compared to 2020 for the largest managers in this year ’ s survey . Going further , long-only managers with US $ 0.25 billion to US $ 0.5 billion in AUM show a year-on-year increase in the number of algo providers , rising to an average of 2.5 in 2021 which is up from 1.83 in 2020 . One explanation for this is that the unprecedented market volatility of the past 12 months compelled smaller managers with fewer resources to expand their range of partnerships . By contrast ,

larger managers in all categories above US $ 1 billion have reported declines in the average number of providers compared to 2020 . Cost pressures have accelerated the move to consolidate relationships , with managers representing over US $ 50 billion reporting using 3.89 providers ( down from 4.02 ), managers representing between US $ 10 billion and US $ 50 billion reporting using 3.47 providers ( down from 4.25 ), and managers representing between US $ 1 billion and US $ 10 billion reporting 2.94 providers ( down from 3.33 ). While having a handful of providers continue to represent an important diversification strategy for the largest long-only managers , downward pressure on research budgets across the industry have tapered enthusiasm over the past 12 months to add more and more providers . Nonetheless , despite the yearon-year direction of travel , larger managers are still associated with a higher number of providers than smaller managers . This is still down to the requirements associated with managing a larger multi-asset class portfolio . Looking beyond equity algorithms , the rise of algo use in the foreign exchange ( FX ) asset class has grown over the years for spot trading

74 // TheTRADE // Spring 2021