Achieving the same (or better) outcomes as trading inhouse is undeniably difficult. Buy-side heads of trading at this year’s TradeTech Europe conference explained that while of course “there will be cases for outsourcing” there are certain aspects of the trading process which are inherently convoluted and thus difficult to execute.

“Our trading group are viewed as part of the investment process with interaction and culture aligned. That’s difficult to replicate using outsourced trading,” asserted the senior panellists.

It is for this reason that only the most dedicated providers are set to reap success. Speaking to The TRADE, Dean Gray, head of EMEA outsourced trading at Jefferies, explains: “It has been well documented that the past few years have seen a significant shift in the mindset, especially of the larger funds, towards the adoption of outsourced trading. As larger funds utilise the service, other groups such as sovereign wealth and platform providers are becoming increasingly involved.

“These groups have an inherent nature of complexity that require outsourced trading providers to heavily invest in human capital and technology to meet all of their requirements effectively.”

Despite a degree of caution being exercised by the buy-side, the fact that around 40-45 firms across the industry identify as utilising outsourcing trading in some capacity, is telling. And the number is climbing.

In tandem, 50 providers are now dedicated to handling the gamut of trading needs. This is a significant reality, and a true sign that the industry is changing irrevocably.

As Rebecca Crowe, managing director and chief operating officer, BNY Markets, previously told The TRADE, “Years ago, it was the middle-office who were contemplating outsourcing and people couldn’t even consider that you would allow somebody into your books and records in that way.”

Broadly, the providers are independent firms, prime brokerages, and custodians, all with their own pros and cons, unique approaches, and distinct strategies.

The frontrunners across this space are clear to see. The next step for key industry players is now more important than ever as the gap between market leaders and ‘the rest’ seemingly widens.

Cost must be balanced with effectiveness

When it comes to outsourcing trading, seeking offerings with clear value-add and a smooth operational set-up has been front of mind for firms.

Brendan Burke, Brown Brothers Harriman’s (BBH) managing director and head of Americas FX sales and business development tells The TRADE: “Managers need to be comfortable that execution via an outsourced platform is comparable to managing the process in-house. It is important to be clear in terms of identifying activities that are in and out of scope to consider outsourcing.”

However, though execution quality is of course front of mind, the cost saving aspect is becoming an ever-more important consideration for the industry as participants are increasingly forced to juggle mounting regulatory, technological and data-related burdens.

Fees are mounting and when it comes to business strategy, this factor is demonstrably taking precedence – but at what ‘cost’?

Aaron Hantman, chief executive of Tourmaline, agrees that, despite the pursuit for quality, the decision to outsource – specifically where to outsource – often comes down to economics, explaining that in some cases this can have negative repercussions.

“If firms can receive front, middle and back-office solutions packaged as one and have to sacrifice the trading quality to get those economics they often do it,” he explains.

This can in many ways be put down to the decision to outsource generally coming from the c-suite and other senior leadership individuals – a controversial reality which many in the market have openly criticised for being an approach which omits important insight from trading teams.

“In terms of who makes that decision [to outsource] of course it is down to the people who are motivated by, and tasked with, looking at overall operating model transformation and cost efficiency – which are generally COO’s and CFO’s,” said Crowe.

She added that even when it comes to how decisions are being made as to the structure of outsourced offerings, capital considerations are commonly at the fore, specifically cost efficiency and more variability with costs.

Of course, this is an understandable reality, given the current state of the market, however, potentially sacrificing trading quality in the pursuit of capital saving is a high price to pay. Advice about cutting off noses to spite faces comes to mind, but as Hantman tells The TRADE, many times this situation arises not through any nefarious means, but because of a certain degree of naivety.

“People truly do not understand in many cases just how badly trading could be compromised,” he says. “Those who make wholesale changes without understanding the impact at the trading level will soon have to reverse out of them a year or two later.”

As firms continue to place a growing degree of trust in these providers, this should theoretically work to foster effectivity.

“Like many managed services, a provider needs to have scale and be able to deliver a quality offering combining client service, technology and trading expertise. It can’t simply be shifting trading responsibility from a manager to the provider,” highlights Burke.

The buy-side agree and discussions at conferences across this calendar year have focused on the importance of alpha retention in this space.

As one TradeTech Europe buy-side panellist affirmed: “Understanding the clients and the markets you trade is essential. You need to think of the trading desk as the engine that drives the room. Those conversations around news flow and pricing are central. An active manager needs an active desk.”

However, the crux is that this is not so easily achieved by an outsourced trading provider. Across the outsourced trading space, the barrier to entry has historically been low, but the barrier to success arguably remains high.

As Gray explains, “as the industry has begun to mature, each offering is becoming more clearly defined. The reality is many are not prepared to make the significant investments required to maintain or grow their share of the market.” 

The important impact of changing market sentiment

Demonstrably, things are ramping up and outsourced trading providers are highly cognisant of the importance of keeping up with the pack in this high-stakes game.

However, importantly, various sources speaking to The TRADE have confirmed that a shift of market sentiment has contributed to the development of this space. What started as a foot in the door, has widened into a significant entryway, with market participants – who were at one time not just hesitant, but hostile – now tuning into the importance of embracing change.

A recent LSEG and Coalition Greenwich report from Q4 2023 highlighted exactly this uptick in views around outsourced trading, wherein 66% of buy-side respondents confirmed their belief that outsourced desks could provide them with better access to liquidity, while 63% highlighted improved execution quality and trade performance.

The responses included views from 45 buy-side equities market participants across the US and Europe, of which 28% expect their firms to ‘at least consider’ adding an outsourced provider over the next two years. One respondent specifically commented that “outsourced providers act as an extension to the trading desk and understand our trading goals”.

Hantman tells The TRADE: “Between 2017-2019, especially in the UK and Europe, there was a lot of pressure for traders to justify their worth, especially considering things like Mifid II unbundling. At that time, the last thing that a trader wanted to hear about was the wonderful attributes of outsourcing.

“If you look at the last couple years there has been an evolutionary rate of acceptance which has accelerated recently. It suggests that the concept of outsourcing or supplemental trading has become institutionalised.”

Traders, and portfolio managers, across the industry are seemingly eager to be part of these conversations – not just about the dawn of outsourcing but also when it comes to technological change across the market.

When it comes to those truly at the coalface of the trading processes, overlooking their acumen should be done at a firm’s own peril.

“We as an outsourced trading community are always going to come up against the ‘fear factor’. However, by not being present in the set-up of a new regime [buy-side traders] are missing opportunity to have a say and effectively create even greater job security with a hybrid approach,” asserts Hantman.

Across firms, senior executives appear to be increasingly taking this on board, attempting to find the perfect balance between saving costs and weighing the true, long-lasting impact of making those big moves.

The market is moving, keep up

Against the backdrop of the growth of the outsourced trading industry, the landscape is set to continue its evolution in marked ways.

Gray predicts two key developments, which are now beginning to emerge: “That growth would lead to new entrants and to more consolidation amongst providers. This would result in polarisation, with a few key players and a larger number of smaller specialists leading the growth.”

Recent times have seen swathes of bigger and bigger firms turning to outsourcing in one way or another, however The TRADE understands that some of the largest firms have been embracing this strategy for quite some time and big moves have already transpired.

Examples just from the last six months include UK-based investment management firm Waverton – which has £9.1 billion AUM – outsourcing some of its trading to Northern Trust Integrated Trading Solutions (ITS), Nordea outsourcing the portfolio management of its emerging market bond funds to Metlife Investment Management, Singapore-based investment manager New Silk Road outsourcing its trading to Northern Trust, and most recently Stifel and Marex unveiling a new outsourced trading partnership under a broker referral scheme.

From Tourmaline’s perspective, Hantman asserts that the firm has been trading for multiple trillion plus asset managers for years, though these are unwilling to be named publicly.

Similarly, Crowe confirmed to The TRADE earlier this year that BNY “absolutely” has large scale clients on its books already. BNY announced a partnership with Goldman Sachs Asset Management in March concerning global trade execution services in EMEA, the US and APAC markets across fixed income, FX, derivatives and ETFs.

Speaking to The TRADE about the FX space specifically, Burke shares that BBH has also seen continued interest from larger managers who have FX resources and technology in-house.

“Many of these mangers are multi-asset class who may manage FX related to fixed income in-house, then lean on a provider to solve for equity related FX, coverage of restricted markets, or for rules-based share class and portfolio hedging programs,” explains Burke.

In The TRADE’s inaugural Outsourced Trading survey, it was discovered that around 72% of clients had less than $5 billion in assets under management, 15% had between $5-10 million, 8% were in the $10-50 billion category while 2.5% were in $50-100 billion and another 2.5% in the $100 billion-plus range.

While historically, this has very much been a space taken up by smaller funds – some large funds are demonstrably turning, or have turned, to these solutions. So, with ever-larger players making real moves in the space, what’s next on the agenda?

“Many articles have reported that better execution and cost-effectiveness are the principal motivations behind outsourcing, but we have noted the ability to cover multiple regions and asset classes are just as important,” Gray tells The TRADE.

Looking ahead, he shares that he foresees the next phase to be towards key players investing significantly in their offerings, providing services in a wider range of asset class coverage, such as fixed income, and also, importantly, emphasises the potential for further consolidation in the market.

Speaking from the Jefferies viewpoint, he shares that “from a technology standpoint, the ability to not only access but develop your own proprietary trading software will continue to be important.”

In the same vein as Gray, Crowe also highlighted a trend of expansion into further asset classes, away from just equities: “Fixed income is probably the next most logical volume traded asset class in the market […] but there’s also a lot of further interest in derivatives and other instruments.”

In terms of consolidation, the market has seen a range of key moves in recent times as firms seek to further deepen relationships and widen their reach.

Earlier this year, State Street acquired CF Global, a significant development in the outsourced trading world, which allowed the firm to considerably expand its geographic reach. Just prior to this, commodities specialist Marex completed its acquisition of TD Cowen’s outsourced trading and prime brokerage business.

Both transactions, among others, could fairly be considered a net reduction in the community, however the synergistic approach has been widely hailed as the future as the industry continues to battle costs, keep up with increased global correlations, and maintain effective processes. The industry will therefore likely see consolidation continue. 

Evidently, the gap between the most successful players in the space and ‘everyone else’ is continuing to grow ever wider. As the market ramps up in terms of the size of key players, heavier expectations on providers, and the consistent battle to strike the best balance between costs and effective trading, outsourced trading strategies are set for continued and significant evolution. The future landscape looks set to be markedly different to what the market is seeing today.

The post Outsourced trading: Easy to do, difficult to get right appeared first on The TRADE.

Griffin originally joined Kepler in 2016 as its head of portfolio and electronic sales trading, later assuming his most recent role as head of market structure and liquidity solutions in 2022. He has an extensive trading career, joining the industry in 1999 as a product controller at Credit Suisse before moving into a series of arbitrage trading roles at Stafford Trading Europe and Nomura Securities.

Stephen Wilkes, the head of buy-side solutions sales and head of securities services at Deutsche Bank, will be departing his role after spending almost 13 years at the bank.  For nearly five years, Wilkes served as the head of buy-side solutions sales and head of securities services sales in the EMEA region. In addition to his role in buy-side solutions, Wilkes also led the sales team responsible for distributing the Deutsche Bank custody platform across the EMEA region for the corporate bank. 

Prior to his tenure at Deutsche Bank, Wilkes spent six years at JP Morgan as an executive director of futures and options and OTC clearing sales. Before that, he served as vice president and relationship manager for JP Morgan’s priority asset manager clients. Wilkes began his career as an account manager at Targetbase Claydon Heeley and also held a senior analyst position at Goldman Sachs. 

Jefferies appointed Peter Johansson as an equity sales trader. Before joining Jefferies, Johansson spent a decade at Nordea Markets, most recently as managing director, head of equity execution. Elsewhere in his tenure at Nordea Markets, Johansson held a sales trading position. Before joining Nordea Markets, Johansson held senior positions at SEB Enskilda Equities, Neonet Securities and HSBC.

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It has been well documented that the past few years have seen a significant shift in the mindset, especially of the larger funds, towards the adoption of outsourced trading. As larger funds utilise the service, other groups such as sovereign wealth and platform providers are becoming increasing involved.  

These groups have an inherent nature of complexity that require outsourced trading providers to heavily invest in human capital and technology to meet all of their requirements effectively.

What have been the biggest moves in the outsourced space over the last year?

The outsourced trading industry has grown to around 50 providers, and against this backdrop I anticipated that two trends would occur at the larger end of the market. Firstly, that growth would lead to new entrants, and secondly, there would be consolidation amongst providers.

This would result in polarisation, with a few key players and a larger number of smaller specialists leading the growth. We have started to see that. Further, as the industry has begun to mature, each offering is becoming more clearly defined. The reality is many are not prepared to make the significant investments required to maintain or grow their share of the market.

A recent industry study illustrates this, with the Jefferies desk the largest provider of Outsourced Trading by client usage, having shown phenomenal growth since launching in 2018. 

With the market’s larger players making real moves in the outsourced space, what does that mean for the future of trading strategies?  

From a technology standpoint, the ability to not only access but develop your own customisable trading software will continue to be important in order to deliver an enhanced quality of execution for the underlying client. As competition at the top of the industry has increased, I anticipated consolidation amongst the larger players and we have started to see that.

I now foresee the next phase will be towards the offering of a wider range of asset class coverage, such as fixed income.

From your perspective, what is the key thing those looking to outsource are considering?  

Many articles have reported that better execution and cost-effectiveness are the principal motivations behind outsourcing, but we have noted the ability to cover multiple regions and asset classes are just as important. With this in mind, Jefferies has heavily invested in its global platform, having experienced buy-side traders in key geographical regions as well as dedicated sales, onboarding, technology and operations teams.

In my opinion, the ability to also partner with a brand which is global is important, especially those offering services such as prime brokerage, capital intelligence and introduction.

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Replacing Siegel, Marex appointed John Orrock as head of fixed income outsourced trading at Marex, alongside several other senior appointments in the division. Orrock takes up the fixed income reins after having served as managing director since February 2022, prior to the spin-off of the outsourced business from Cowen. Prior to joining Cowen International in 2022, Orrock was head of emerging markets and outsourcing at Aurel BGC and before that worked as a trader at BlueBay Asset Management for more than 17 years. He has also held senior roles at Martin International Securities and Tullet & Tokyo Securities.

Alongside Orrock’s new role, Ron Catena was named director, fixed income outsourced trading, joining from JP Morgan Asset Management, where he most recently served as executive director, emerging markets fixed income. Catena has three decades of experience in financial services including a wealth of buy-side trading expertise having previously held senior positions at various firms, including: Vandham Securities, First New York Securities, Securevest Financial Group/GCP, Santander Investment, Donaldson, Lufkin & Jenrette, and Morgan Stanley. 

Marc Wanner was named director, global low touch execution services at US investment bank Stifel, following nine years at Morgan Stanley. Zurich-based Wanner most recently served as executive director – equity sales trading at Morgan Stanley. During his tenure at the firm, he was a member of the institutional equity sales and trading desk in Europe for global equity cash flow, as well as leading and implementing the first execution service desk (ESD) on the continent for Morgan Stanley. Wanner has more than a decade of experience in global equity sales trading, having also previously worked at UBS, in roles including director, equity sales trading – emerging markets and Asia Pacific. 

The post People Moves Monday: Jefferies, Marex and Stifel appeared first on The TRADE.

Siegel joins Jefferies from Marex, where he spent the last four months serving as head of fixed income outsourced trading. He joined Cowen as managing director for fixed income outsourcing in February 2022, transitioning to commodities specialist Marex as part of the sale of Cowen’s outsourced trading and prime brokerage business at the end of last year.

Jefferies declined to comment and Marex had not responded to a request for comment at the time of publishing.

Previously in his career, Siegel served as head of European credit sales and trading at MUFG, as well as head of investment grade credit trading at RBC Capital Markets. Other previous tenures include credit trading roles at both Barclays Investment Bank and Credit Suisse.

Earlier this week, The TRADE reported that former head of emerging markets and outsourcing at Aurel BGC, John Orrock, had been named head of fixed income outsourced trading at Marex – replacing Siegel – alongside several other senior appointments in the division.

Read more: Former JP Morgan AM emerging markets specialist among new hires at Marex as it bolsters fixed income outsourced business

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As markets become increasingly complex and interconnected, the need for speed, precision, and automation has become paramount. From the early days when algorithms were basic rule-based systems executing predefined strategies, to the present era of machine learning and artificial intelligence-driven models, the evolution of algorithmic trading is central to the adaptability of financial markets. 

“Algorithmic development has and always will evolve to achieve the best performance possible versus the client benchmark,” says Alex Harman, head of EMEA electronic and program trading at Goldman Sachs. “That would involve minimising footprint via enhancing order placement and internalisation, having extensive liquidity capture via the SOR and a framework of customisable algorithms built upon a fast, scalable algorithmic platform.”

Simplification and automation have been key focus areas on the buy-side. The goal is to enable high touch traders to adapt dynamically to market conditions while still ensuring that algo strategies remain simple so that those strategies can be correctly measured and compared. 

“On our systematic side, we have adaptive algorithms that are identified in our EMS and routed to multiple venues to achieve the optimal outcome,” notes Samuel Henderson, EMEA equities head trader at Invesco.

“This adaptive automation allows us to manage hundreds of orders quickly and efficiently at below pre-trade costs and most importantly without adverse selection. As we expand our database of measurable historic trades, our machine learning insights continue to enhance the decision making of our algos.”

Evolving client demand has driven innovation in algo trading. More traditional strategies, such as VWAP for example, have begun to incorporate machine learning and predictive techniques to remain relevant. Increasingly, clients are looking for more advanced methods of liquidity seeking, in particular in harder-to-trade stocks during liquidity events, such as the close and monthly expiries.

“Trading is always a trade-off between price impacts and opportunity risks,” says Ben Springett, head of electronic and program trading, EMEA, at Jefferies. “The longer I take, the more opportunity/risk I’m exposed to. We see a migration of strategies toward higher urgency liquidity seeking; we see people moving away from VWAP; and we see less people willing to wait for the closing auction.”

During periods of high volatility, some quant funds as well as funds which typically use long duration or schedule-based strategies such as VWAP or TWAP, will see a shift in urgency to go into more arrival like benchmarks such as liquidity seeking algos. 

“Clients that continue using schedule algos tend to shorten the order duration and in addition, they look to customise participation in the closing auction,” notes Harman. 

Volatility

During periods of increased volatility, algo strategies come to the forefront even though their usage isn’t necessarily changed entirely. Instead, it becomes a by-product of a change in objective of the buy-side trader. A greater sense of immediacy becomes apparent for traders in these periods, resulting in a shift in algo strategies.

Typically, as volatility increases, liquidity decreases, resulting in an increase in impact. In such periods, it can be observed that traders move from automated algo trading to high touch and portfolio trading, relying on more blocks. 

“As market volatility increases, we find clients tend to specify more algo parameters on an order level i.e., ‘offsets to benchmark’, ‘would levels’ and ‘smart scaling’,” notes Chris McConville, global head of execution services and trading at Kepler Cheuvreux Execution Services (KCx). “We also see an increase in customised algo usage. In more recent situations where market volatility has increased, we saw an increase in demand for agency blocks.”

Information leakage

When utilising algorithms, information leakage becomes paramount, especially when breaking up orders and dealing with multiple banks. Various techniques exist to help combat the issue, including splitting larger parent orders into smaller child orders to disguise the full intent of a trade, to both the market and a single broker. 

“Trading electronically can prevent word of mouth leakage – but similarly information leakage can be created by using the wrong algorithm or venue in the wrong way,” emphasises Invesco’s Henderson.  

Unpredictability also takes precedent. Firms need to be unpredictable when they respond to price changes, unpredictable in terms of size that they’re submitting to markets, while also maintaining an unpredictable stance in terms of their presence in the market. 

Reducing the predictability of the algo order placement – the child orders in the market – can also help reduce information leakage. In essence, preventing information leakage in algorithmic trading hinges on the intelligent design and execution of algorithms and SORs, notes McConville.

“Strategies like randomising order sizes, managing market entry times, utilising multiple and non-displayed trading venues, and deploying conditional orders are vital,” he says. “These approaches not only protect a trader’s strategy but also enhance the efficacy of their trades in a complex, multi-bank environment.”

Limitations of algo trading

As with any technological advancement, algorithmic trading has its limitations. Although these have narrowed, these strategies can still be improved. One of the biggest limitations is the lack of understanding related to the context behind the orders that are being placed. 

“Even the most sophisticated algorithm cannot know that the portfolio manager has been waiting three days to find liquidity, a potential catalyst is approaching, or that a bullish research note was published earlier that day,” highlights Phil Risley, head of trading and product development at Redburn Atlantic. “The algo will take the statistically correct approach, and adjust for a range of real-time signals, but that may not necessarily be optimal for that stock, for that PM, on that day.”

Algorithms are not one size fits all and another limitation to these strategies is that their appropriateness varies. Just because the tool was the most appropriate one day, does not mean it will necessarily be best tool on the next. Traders must consistently assess the usefulness of algo strategies and amend them appropriately to ensure they provide the best outcome. 

“There may be a change in market conditions, such that an algorithmic strategy was perfect yesterday, when there’s a significant amount of midpoint liquidity, there’s periodic auction, there’s conditional blocks and so on, and today that might not be the case,” notes Jefferies’ Springett. 

“Having an awareness of the real-time conditions that you’re trading into; helps you navigate the limitations of algorithmic trading.”

Another key limitation is liquidity. There is no magical way to create liquidity and algorithms may not be appropriate in every scenario. 

“Pre-trade metrics can give an idea of estimated cost and liquidity – which should help the trader choose the best way to start an order, be it via an algorithm, a high-touch desk, directly using broker capital on risk or any combination of channels,” explains Henderson. 

Most algos are based on a schedule and that schedule can be interrupted by events. This means that if volume is out of character, the algo must guess, which can ultimately lead to negative results. 

“Any algo is bound by the parameters the trader sets, unless the algo is customised. This is where understanding your algo tools is key. And, if you use more than one algo provider, you must make sure you know the differences between them,” stresses BNY Mellon Pershing’s equity trading desk manager, Matt Short.

Trader intuition

As with any technological advancement, the trader’s role shifts as it looks to adapt and improve workflow. Trader intuition is crucial, given that traders can see past historical data and utilise lived experiences to make the best decisions in unusual scenarios, which algorithms may not be able to detect.  

“Buy-side traders have an awareness of the stocks they’re trading, whether or not they’re sectorised, or arranged by portfolio management group, or whatever it might be – they have that underlying experience where they’ve seen a range of different conditions,” notes Jefferies’ Springett. “They’ve identified what can be successful and unsuccessful in those different conditions. And almost on a second nature basis, know what the right tool is for the job at any given point in time.”

Advancements such as artificial intelligence have proven to be beneficial to traders, however, these have been viewed as aids as opposed to replacements of the human trader. The same can be said for algorithmic trading strategies.

The buy-side have better internal tooling via their EMS or data provided by counterparty banks to help ensure they know the best time to use a certain strategy. Thanks to the continued evolution of electronic and algorithmic trading, buy-side traders are now inundated with growing data sets and pre-trade analytics to help determine what to do with a specific order. 

KCx’s McConville highlights that “while the efficiency and analytical prowess of algorithms are undeniable, the role of trader intuition in selecting the right algo remains indispensable.”

A benefit of algorithmic trading is its lack of human bias. Humans inherently have bias, be it conscious or unconscious– something that algorithms can avoid, making them more useful in certain trading scenarios. 

“If you are seeking to identify genuine differences that exist between different things, then having an automated process of managing the distribution of orders across those is critical. It’s impossible for a human being to remove all of their bias from any process,” adds Springett. 

Customisation

Central to much market debate in recent years as algorithms have developed is how much a firm should customise their strategies. Customisation comes with pros and cons, depending on what the algo is being tailored for. 

“When considering algo wheels, it is rare that an out-of-the-box strategy is going to be a perfect fit, so true customisations – specifically designed to take account of both the benchmark and the characteristics of the order flow – are more common,” notes Redburn Atlantic’s Risley. 

Although providing many benefits, customisation can also bring about more complexity, which could lead to increased risk of unintended consequences. To avoid these, robust tests, testing capabilities, QA testing, and change and release procedures are required to ensure that customisation does not impose unintentional consequences. The client’s desired customisation might also achieve different outcomes across brokers.

“While we try to build algos that work really well out of the box, we have several clients who each have different needs and requirements,” notes Goldman Sachs’ Harman. “What one client needs from VWAP or liquidity seeking algos doesn’t necessarily match what the next client will want in terms of performance, venues or urgency.”

Customisation can also increase cost and come with added pressures, including ensuring staff – especially new joiners – are trained up on each change to the algorithm. The buy-side have been vocal at industry events about the danger customisation poses to delaying updates to algorithms. When a new version of an algorithm is released, those firms who have customised it are often left until last to upgrade. 

“It is important to stay disciplined when developing [customised algo] solutions, in terms of documentation, increased testing, or even simply ensuring your client understands what the custom actually does in real life,” emphasises KCx’ McConville. “One thing is for certain, being efficient with customised solutions means you really need to understand agility, to avoid a drag on your resources.”

Central to agility is data. Like with anything linked to automation, data plays a crucial role in ensuring the success of any advancement. Algorithms require reliable sources of data around venue performance, smart order routing, liquidity profiles or opportunity costs to ensure they are beneficial to traders.

That data needs to be updated frequently to ensure the effectiveness of the solution, given that real-time data forms a key part of algorithmic behaviour. 

“It is important to understand that the execution landscape is continually changing and that historical data may not reflect today’s reality, but even more crucial is the recognition that the goal of any form of analysis is to develop insights allowing you to improve results,” notes Risley.

Looking forward

Although having its limitations and with areas of growth still existing, algorithmic trading continues to show promise as a trading strategy to help prioritise time and shift attention to more pressing orders. 

Algorithms are getting smarter and buy-side desks are equipped with more data and analytics to help with algo strategies alongside their tool kits becoming more sophisticated. Although limitations do exist within algo strategies, it appears as though these are narrowing. Algorithms are smarter than ever, but there’s still more work to be done.

The TRADE has actively been tracking developments in algorithmic trading over the past 17 years, by carrying out its annual Algorithmic Trading Survey. First launched in 2008, the survey now receives over 1,500 provider ratings from traders across the globe. To share your views please participate in the survey here.

The post Algorithmic trading: Smarter than ever? appeared first on The TRADE.

He joins the investment banking arm of Daiwa Securities Group as its new head of equities after nine and a half years with Jefferies, having joined in 2014 in his most recent role.

Trust has an extensive career specialising in equities and arbitrage strategies. Prior to joining Jefferies, he spent just under a decade at Morgan Stanley as an executive director covering US equity sales in London and Scandinavia.

Previously in his career, he spent two years at Praeda Capital and a year at London Capital Group, both in trading roles focused on arbitrage strategies. He began his career as a junior portfolio manager at RSA covering US equities.

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The aim of the platform is to streamline multi-asset trading, reducing the number of accounts and apps used across asset classes by “providing clients with an intuitive and advanced platform with a superior trading experience across each of the tradable markets, all from one portal that can be accessed via a mobile app and web platforms”.

The sophisticated offering is aimed at active traders and investors and offers thousands of tradable assets. The platform operates across: listed equities, commodities, cryptocurrencies, CFDs, forex, treasuries and indices.

The platform combines deep market access, technology, institutional-level pricing and a high level of trading expertise.

Following the December launch, the platform will be rolled out globally over the next few months, the business has confirmed.

In addition to its multi-asset solution, Tradu also offers an ‘eWallet’ which allows clients the benefits of a virtual and physical debit card and allows for easy transfers between trading and eWallet accounts.

Brendan Callan, chief executive of Tradu, said: “Tradu has been built by traders for traders to provide them with the platform they deserve – one that offers access to a variety of markets, all from one seriously powerful, sleek app. Too much of the retail trading industry has focused on gimmicky features, trend-chasing and gamification.

“Instead, we are laser focused on serving traders’ needs, offering aggressively competitive pricing, professional trading tools and a client service team that strives for excellence. Tradu is launching the next evolution of mobile trading to UK clients and will soon be expanding globally.”

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The 20-year industry executive has taken on the role of head, cash and liquidity management at the hedge fund.

Childs had spent almost three years with Jefferies after co-founding treasury technology start-up Kayenta in 2018.

Prior to this, Childs spent the bulk of his career at Citadel, his final role as international COO after previously heading up treasury and operations.

He began his career as a software developer before joining RBC and then Societe Generale.

Childs recently contributed to The TRADE’s outsourced trading handbook, stating: “Over the last few years, we have seen wholesale change and increased adoption and engagement from the buyside toward outsource trading. Where hedge funds were the traditional users, we now see a far more diverse group of players, including managed accounts, allocators, insurance firms, family offices and sovereign wealth managers, to name but a few.”

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As another new category to the 2023 Leaders in Trading awards gala, this award is intended to celebrate those sell-side institutions committed to expanding their electronic trading offerings to aid clients and remain innovative.

Among the key players in this competitive landscape, The TRADE has deemed Goldman Sachs, Jefferies, JP Morgan and TD Cowen the top performers for the 2023 shortlist.

Goldman Sachs 

Goldman Sachs Electronic Trading (GSET) has undergone a makeover in the last 12 months, designed to streamline its operations and expand its algorithmic client offering. Around 72% of what Goldman trades per day in notional is now accounted for by the low touch channel with the roughly 28% left accounted for by high touch and program trading.

In light of the evolving demands of its client base, the Goldman Sachs team has been expanding the remit of its low touch capabilities including the building out of its suite of algorithms on its new proprietary equity trading platform, Atlas. Throughout 2023, the bank has been migrating its algos onto Atlas including its new liquidity seeking algo, Sonar, a dark liquidity seeking algo, Sonar Dark and VWAP. The rest of its algo suite are derivatives of these three. Embedded in its Sonar strategy is a new Dynamic Close Scaling perimeter designed to capture more liquidity in the closing auction and DTC Stealth – a new solution aimed at internalising orders before they touch the street. 

“GS’s desire to help clients improve their trading performance at the parent order level across all trading channels (high touch, program trading and low touch) was a core reason why we kicked off a multi-year, global >$100mm USD investment into our trading stack three years ago. Everything has been built from the ground up, giving us the enormous scale and flexibility needed to operate in the trading landscape we see today,” the bank told The TRADE. 

Jefferies

Jefferies Electronic Trading (JET) offers algorithmic strategies and program trading across Europe, the US and Asia. The broker offers a platform with algorithmic access spanning 45 countries and over 100 liquidity destinations globally. Jefferies offers its clients a full suite of liquidity seeking and benchmark tracking algorithms, both through client integration and via FIX architecture to OEMS providers.

Alongside the firm’s liquidity seeking, next generation, auction and listed based algorithms, Jefferies offers its clients workflow solutions allowing them to switch between strategies or utilise tiered strategies, and a suite of customisable algorithmic strategies across VWAP, TWAP and others. It’s constantly working with its buy-side clients to develop and tailor new strategies to meet their needs including continuously developing its growing algo wheel offering, creating new strategies around the close in light of the market’s shift to the final portion of the trading day and new tools for order aggregation amid industry consolidation.

It has previously been ranked number one US electronic trading product and service quality provider and number one most helpful execution broker during the covid-related market crisis by Coalition Greenwich. Jefferies won the Algorithmic Trading Best Customer Support & Consulting at the Leaders in Trading Awards 2019. 

JP Morgan 

JP Morgan moved to expand its rates algo franchise to support the market’s wider electronification of rates trading – which has historically had limited algo usage and instead favoured risk transfer via RFS and RFQ for pricing and execution – in May.

As part of the expansion, JP Morgan now offers a complete set of algo order types available in rates across time, limit and market. The offering is available via the bank’s single dealer platform, Execute, and via API, with plans to get the offering live with FlexTrade and Tradeweb in the future. The bank launched its existing TWAP rates and adaptive algos last year. Both use JP Morgan’s internalised liquidity pool.

Alongside the expansion, JP Morgan also became the first dealer to go live on Bloomberg for automated US treasuries algo execution, meaning clients can now place an order on the platform and executions are streamed back for clients in real time with electronic trade booking once the order is done. The move meant the bank’s rates algo offering became equal to its long-standing FX algos offering in terms of analysis and tools available.

“Algos help clients manage costs, efficiently access liquidity and are an important utility in the toolkit given the current market environment. Other benefits include the time savings associated with the automation of workflows, the ability to access multiple different sources of liquidity, and the availability of pre- and post-trade analytics,” Chi Nzelu, head of FICC eTrading, JP Morgan, told The TRADE at the time of the announcement. 

JP Morgan won the Algorithmic Trading Best Provider – Multi-User Clients Award at Leaders in Trading 2022.

TD Cowen 

Despite the industry challenges posed by consolidation and declining market volumes, TD Cowen’s European electronic trading team has gone from strength to strength in the last 12 months. In a time when many are making difficult decisions around downsizing, TD Cowen has expanded its European electronic trading business, continuing to hire talent to reinforce its team to meet growing demand from clients under the leadership of Tom Campbell.

Since its launch in 2020, TD Cowen’s equities market share has continued to grow in the European market. Recent developments have further accelerated the firm’s progress, including its acquisition by The Toronto-Dominion Bank for $1.3 billion. “This strategic move provided a springboard for further growth, opening new opportunities and strengthening its market presence,” Cowen told The TRADE.

“At the heart of TD Cowen’s success lies a commitment to best-in-class client coverage. Its thoughtful liquidity interaction and market-leading dark liquidity seeking algorithms enable the team to not only stay ahead of the competition but also manage costs more effectively for clients. Its agility and adaptability to client needs in algo trading is truly exceptional, exemplified by its ability to swiftly implement changes intraday (or where necessary overnight) — a feat that larger institutions struggle to match.”

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