So, what does the buy-side trader want when it comes to multi-asset trading?
It goes without saying that he or she wants the best price, fill size and minimal adverse selection and market disruption. But there’s something else…
What is it?
Help from his or her vendors. Without these critical providers of essential services, the buy-side trader leaves much to chance which has given rise to the latest trend of partnership between the technology providers and institutional trader. Think of it as two great tastes that go great together – like chocolate and peanut butter, peas and carrots, or movies and popcorn. And the fewer vendors, the better. Or better still, one vendor who can accommodate other vendor partners on their platform.
Michael Chin, Managing Director and Global Co-Head of Trading at Thomson Reuters, told Traders Magazine that given the rise of multi-asset trading and desks and the dismantling of siloed trading, the buy side is actively searching for an integration of trading systems and services on a single platform. Given shrinking buy-side budgets and the need for efficiency, having a single provider supporting multiple applications on a desktop is crucial. After all, screen real estate is precious.
“What we’ve seen and heard through our extensive discussions with the buy side and sell side is the need to integrate fixed-income trading capability alongside what they're doing with equities, futures, options, and foreign exchange,” Chin said. “The one message that we got loud and clear from discussions with our buy side clients is, ‘we would much prefer to go to a single vendor that provides multiple services and reduces the complexity in managing multiple sub-vendor relationships as opposed to multiple vendors where they don't get the benefit of an integrated solution.”
Chin added that traders that he has spoken with desire having their trade executions and data localized and housed at a single place. By co-located trading applications and historical data, it becomes easier for buy-side traders to perform pre-, mid- and post-trade analytics
Furthermore, Chin adds, “If the buy side can aggregate all of their trading onto a single provider platform, they get the most comprehensive, holistic view of their trades. It's the need for pre-trade analytics, trade cost analysis and proving best execution that are also driving the demand for a single vendor, end-to-end solution. This in turn is also driving the speed of adoption of electronic trading across multiple asset classes, because it's much easier for a client to prove best execution when they can trade electronically.”
Dan Royal, head trader at Janus Henderson agreed that a single vendor for all his trading needs would be perfect but not always doable. Still, he hopes.
“Leveraging a single vendor for multiple asset classes would be ideal, yet we’ve found distinct strengths that don’t always apply broadly,” Royal told Traders Magazine. “Personally, I think firms should focus on integrating best of breed providers into an open API, rather than trying to own the whole space. A singular platform that can house a variety of providers with some efficiency on desk real estate and data harmonization would be a solid industry outcome.”
Nanette Buziak, head trader at Voya Investments, explained her firm historically had defined vendor selection by the asset traded and subsequently had deployed multiple vendors. Her desk had one vendor specifically targeting fixed-income trading and another for equities. But cost pressures and the ever-increasing need to be more efficient has also driven her to shrink her vendor list.
“We recently migrated our equities platform onto BlackRock Aladdin for Equities. Our fixed income team had been on BlackRock Aladdin and over the past few years,” she began. “But they (BlackRock) had invested extensively in their equity platform so for a lot of synergy opportunities, we migrated.”
Using a single provider for all their trading services both Janus Henderson and Voya can further automate and streamline their processes and better meet their “best ex” and fiduciary responsibilities. And that is a trend seen by Thomson Reuter’s Chin.
Phil DeFrancesco, Global Head of Cross-Asset Trading Desktop at Thomson Reuters, added that many Tier 2 and 3 firms are looking to upgrade their legacy systems and technologies to something newer and more scalable but can’t always do the job themselves. By partnering with Thomson Reuters and leveraging their open architecture platform, these firms are able to quickly streamline workflows and add more services that the buy side needs, without the huge costs required to build and maintain themselves.
“I think they (Tier 2 and 3 firms) are increasingly interested to partner with firms like us,” DeFrancesco began. “We're starting to see some of the mid-tier firms really start to win more of the commission wallet from the buy side. Part of the reason is because they are more nimble by leveraging partners such as Thomson Reuters to help them provide a one-stop shop and improve their coverage model for their buy side clients. A lot of times they focus on having one sales trader as a touch point for each buy-side client, where that sales trader is expected to intimately understand their clients and address all the client’s needs, across asset classes and trading styles.”
Chin added that vendors such as his can meet this need given their neutral market status and investment in technology offering. Thomson Reuters, he said, adopted an open platform approach to its desktop offering.
“Our commitment is to give our clients access to the broadest pools of liquidity across asset classes and to trade with any counterparty that they do business with around the globe,“ Chin said. “This is a core principle of our award winning REDI EMS and FXall platforms.”
By having an open architecture platform – whether containing multiple offerings from a single vendor or an API type design (both employed by Thomson Reuters) that is open to outside providers – institutions can not only wring the most out of their traders and budgets but also streamline their processes. Janus Henderson’s Royal said that this is where the vendors are strong in some areas and weaker in others. He wants to see the continuum between TCA and venue analysis conform into a singular, credible provider that includes an expert consulting dialogue.
“Moving up the food chain, expressing those results into a comprehensive automated trading solution that can replicate the human decision tree,” Royal said. “Also, I’d love to see a holistic technological solution for syndicate activity workflow."