Buy-side outsourced trading adoption on the rise

Outsourced trading is on the rise for the buy side as managers look for more liquidity, research and market intelligence, according to recent research from Coalition Greenwich.

In a study of 103 buy-side equity traders worldwide, 10% had paid trading commissions to outsourced trading platforms over the past year. The majority (7%) reported spending up to US$3 million on the service, with the remainder paying more.

This practice, which the buy side has long baulked at, is becoming more adopted as firms seek to access sell-side research, market intelligence and liquidity that is not available internally or through existing sell-side providers.

However, some outsourced trading providers opposed being categorised as execution brokers. One participant argued that they would not compromise sell-side relationships by disintermediating brokers. Another stated that they act as a “lever” to the investment team, “[empowering] them [and] providing a path to information and liquidity”.

A primary concern around outsourced trading is trading discretion, with study participants suggesting that only in-house traders can ensure this thanks to their continuous contact with portfolio managers. Relationship management is valued as a key tool here.

The outsourced trading space is currently flooded with options, the report notes, adding that many platforms will struggle to gain traction and build sell-side relationships. Those taking part in the survey emphasised the need for talent as well as a healthy technology budget.

©Markets Media Europe 2024

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