It has been years in the making, but the end of the siloed approach to trading desks has finally begun to happen, and the single touch or one-touch trading desk is taking shape.
Long the standard model for equity trading desks, two separate and distinct units existed on Wall Street. The first unit was the high touch desk, staffed with sales traders who executed trades via telephony and trading chutzpah, and who manually worked an order until completion. The second, or low touch, trading desk was staffed with technologists who simply placed the buysides order into an electronic trading tool or algorithm; they employed a set it and forget it methodology and let computers automatically decide how best to fill an order.
Those days apparently are numbered, thanks in part to a stagnant business. Lack of growth in commission levels, the need to invest in non-equity trading desks and greater need for trading infrastructure development have forced brokers to get more out of their staff and, in most cases, reduce headcount as the buyside continues to demand more cost savings and yet more service.
Could high-touch trading, which fell out of favor as commissions dropped after 2009, be making a comeback?
According to Greenwich Associates, after years of robust growth, e-trading volumes in U.S. equities have hit the wall. The amount of trading this way hasnt grown since 2012, the firm said, noting that the recent run-up in electronic trading has been dealt a blow by a combination of increased market complexity, high levels of business concentration and competing demands for order flow.
The results of the Greenwich Associates 2015 U.S. Equity Investors Study show that institutions over the last year executed about one-third of overall U.S. equity trading volume electronically, a share essentially unchanged from the prior two years.
These results, which are based on interviews with 243 U.S. equity portfolio managers and 321 U.S. equity traders, prove that although e-trading is nearly ubiquitous among institutional investors, usage has plateaued. While 90 percent of traders execute at least some of their trades electronically, over the last four years institutional investors consistently executed only one-third of their U.S. equity volumes through broker e-trading offerings.
Kevin McPartland, an analyst at Greenwich Associates, said that while the 2016 trading desk is most certainly moving towards one-touch its not the end of the two-touch system. But he added that based on conversations with the buyside, some larger institutional investors and traders still want to keep both high- and low-touch trading desks separate and distinct. These buysiders said that they want the expertise of a voice broker working a block trade order as opposed to an algorithm that simply dices and splices an order.
Also, given the fact that algos have no human restraint, buysiders argue that people are still needed to prevent an algo from going wild or rogue.
The days of the two-touch trading desk are not necessarily over, but we are moving that way for sure, McPartland said.
