April 1, 2013

One-Touch Is the Future, Exec Says

By Peter Chapman

The institutional equities business is moving to a one-touch coverage model, but the buyside's participation is optional.

That's the message Brian Fagen, Deutsche Bank's head of North American execution services, sent to attendees at last month's TradeTech conference in New York, according to conference-goers.

"You will see more clients moving toward coverage by fewer people rather than more," Fagen said, "but the sellside will not force it on them. That would be a disaster."

Brian Fagen, Deutsche Bank

Fagen's remarks come as the bulge bracket is starting to offer its clients the option of having a single individual or a group of traders covering both their high-touch and low-touch trading needs (See Cover Story, March 2013). Behind the move is the sellside's need to cut costs, although there are advantages to convergence for the buyside as well.

Still, the trend is a concern for many on the buyside who prefer to keep their electronic orders separate from their block orders. They fret over a loss of the anonymity they enjoy when trading with the bulge's electronic departments.

"I understand the argument that the sellside wants to be able to cover buyside accounts more efficiently," Ryan Larson, the head of U.S. equity trading at RBC Global Asset Management, told attendees. "So you take the cash person and the electronic person and combine them as one. But from our standpoint, I'm not sure I want to give up the anonymity that comes with separate electronic coverage."

Every bulge shop that has spoken with Traders Magazine about the issue has emphasized that their single-touch services are optional. At TradeTech, Fagen echoed those comments.

"We couldn't possibly cover many of our clients with just one person," he said. "Whether it's the anonymity issue or simply the amount of business they do, you have to have multiple people covering them."

Still, Fagen made the point that it would not be irrational to combine the services of the high-touch sales trader with those of the low-touch electronic sales trader. The cash desk already trades electronically, he said. It also offers capital and block crossing services.

"There's no reason why a high-touch sales trader should have any different set of tools, analytics or whatever than an electronic sales trader," he said. "They are essentially doing the same thing."

The problem, the exec noted, is that the electronic trader has a limited set of services he can offer. The high-touch sales trader, by contrast, can offer everything.

Because the buyside is seeking best execution, Fagen said, it would be best to deliver all the services it needs-high- and low-touch and program trading-"in a rational way."

At least one buyside trader is comforted by the fact that agreeing to a single point of contact is optional. "They're giving their clients the option," Larson said. "That's best."

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