“Algorithmic upstarts” are overwhelming traditional equity traders with excessive product launches and overly complex platforms, according to research from Coalition Greenwich.
A survey of European buyside equity traders published this week reveals a “cut-throat institutional equities business” particularly for brokers competing in the electronic or algorithmic arena, which is driving some firms to flood the market with “overcomplicated” offerings.
Jesse Forster, senior analyst at Coalition Greenwich Market Structure & Technology and author of the 2023 Trends in European Equity E-Trading report, said the landscape for brokers is increasingly competitive as participants face a squeeze on fees; rising market data, venue and connectivity fees and narrowing broker lists that “concentrate work to the buyside’s most valued counterparties”.
Forster added: “To complicate matters further, upstart brokers are entering European equity markets with claims of next-generation algorithmic platforms. These developments have pushed established incumbents, most with deep pockets, to continuously refresh their legacy offerings in a valiant effort to keep pace.”
The research finds that while three-quarters of European equity traders name ease of use, reliability and quality of technical support as their top criteria when selecting algo platforms, Forster said brokers are launching new services “at a rapid pace” in an effort to differentiate themselves from their competitors, which may not meet the buyside’s expectations.
“Equity traders often need help navigating the increasingly broad and complex universe of algorithmic trading. In fact, even within individual brokerages the launch of so many new products risks making platforms overcomplicated and with every update, buyside traders are forced to gain familiarity with new options.”
Forster noted that the excessive amounts of products and services aimed at buyside traders ran the risk of creating more problems than they solved, and he said the best-in-class brokers will supplement technical innovation with advisory and consultancy capabilities to help clients understand and employ their platforms.
“Brokers who are able to most effectively balance both the human and technological elements of algorithmic trading will come out on top, particularly among sought-after, high-commission-paying asset managers.”
©Markets Media Europe 2023
