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May 1, 2011

Turf Defenders

By Michael Scotti

Several topics stand out in this month's issue. First is the big drop in trading volume. The anemic numbers in the first quarter took everyone by surprise. Given that the first quarter is usually a robust period, industry execs were concerned. In this month's feature, "Where's the Flow?" you can read what happened to institutional flows and what might jump-start trading. The piece offers solid analysis by James Ramage, our senior editor.

Michael Scotti

This issue marks James' last at Traders Magazine. He's going back to his roots of daily newspapering and moving to a sister SourceMedia publication, The Bond Buyer. James will be missed. Steady and dependable, James was clutch for nearly four years. I know he was respected in the industry and here. All the best, James.

One story James was proud of was his feature last year, "Lying in Wait." It was a piece about predatory traders using pattern recognition tools to find large orders and run ahead of them. That's been a buyside complaint for some time. This month's cover story is the sequel.

Peter Chapman, our longtime executive editor, writes about how the buyside is demanding tools from the sellside to help it evade predatory traders. And the brokers have responded. The story, "Sellside Moves To Protect Buyside From HFT Onslaught," offers an analysis of the state of trading. The issues, however, are complex. There are shades of gray within them. That's why they're interesting. For example, as the buyside does more self-trading, brokers believe they can offer insight into the process to lower trading costs. But the buyside is not giving the sellside enough discretion in the process. That raises the question: How much discretion should the buyside give the sellside?

Avoiding high-frequency trading is a top issue for the buyside, according to a recent Tabb Group survey. But our cover story also reports that the buyside could improve performance by taking advantage of various broker offerings-tools it has demanded. A recent study by Credit Suisse reveals that half the buyside uses just one algo. Before Reg NMS, the buyside represented 80 percent of the flow. But today its importance to exchanges has been usurped by high-frequency traders. Regardless of how many tools brokers offer, the buyside also needs to "defend its turf" by using an array of products. It must avoid a trading footprint. It is sure to be a continuing story. Enjoy the issue.


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