It had to happen sometime.
And it has. For the first time in five years, algorithmic executions by buysiders have declined as commission spend has dropped off.
That’s one of the findings of TABB Group’s 11th Annual “U.S. Institutional Equity Trading Study: A Vision Forward,” the first part of which was released today. The market consultancy also said that a “perfect storm” of compliance demands, execution quality and technology issues are driving firms to replace their order and execution management systems.
The study covers buyside firms’ top initiatives, execution channel allocation and commissions, including wallet, rates, CSAs, broker vote and unbundling.
A whirlwind of scrutiny by regulators and media has tipped the scales in favor of long-awaited technology platform implementations to facilitate large tasks of data collection, analysis and surveillance. Where U.S. scrutiny is focused on sellside routing practices and trading system functionalities, in Europe transparency into buyside research costs is receiving the most attention but it is increasingly likely that the divorce of research payments from trading commissions in Europe will seep into US buy-side firms’ operations.
The report is on interviews with heads of trading at 92 buy-side firms, including traditional asset managers and hedge funds.
In the report, Tabb found that the buyside has allocated less trading to DMA/algos this year – with 38 percent of trades executed this way versus 41 percent for asset managers and to 43 percent from 48 percent for hedge funds in part due to lower commission wallets.
Also, U.S. buyside firms on average used 68 research firms. Small managers used on average 46 researchers, while medium sized buysiders used 63 firms and large institutions used on average 124 firms.
Surveillance compliance demands (data collection), execution quality (real-time, pre-trade and post-trade TCA) and technological concerns are driving 27 percent of the firms to replace and upgrade decade-old OMS/EMSs.
In the next part of the survey, to be released shortly, TABB said it will examine coverage models, valued products and services, including block IOIs, and top broker rankings, with part three covering execution quality and market structure impact issues.