Trading | Execution consulting
of other regulations. Liquidity has been scattered across a wider array of dark and lit pools and while the once cutting edge tools of direct market access and smart order routing have a place, buyside firms also want a more nuanced approach to the changing market structure. In the US alone, TABB Group figures show that fund management firms currently execute 48% of their US equity order electronically over 65 trading venue using more than 600 broker- built algorithms, thousands of smart order routing logic solutions and an endless stream of post- trade transaction cost analysis data. “Execution consulting is becoming a big topic as the electronic component has become bigger,” says Adam Toms, chief executive of Instinet Europe. “It is not just about execution but the advanced analytic product set. I think it will become more important because buyside traders are focusing more on the value that their brokers are creating.”
Different options Of course there is no one size fits all strategy and each brokerage firm has its own spin. There are common threads though in that they all are aiming to offer more of a personalised and tailored service. This ranges from high touch advisory and trade and risk execution analysis to real time tools for live insights, according to the Aite report. For example, Bank of America Merrill Lynch (BAML) offers bespoke analytics to expose trends and opportunities to enhance the trading style or strategy customisation while Citi dissects algorithms and monitors the liquidity they interact with in order to improve performance. Both global banks also have the advantage of being able to leverage their group’s wide range of expertise on multiple disciplines, risk management, transaction cost analysis and quantitative research. Bloomberg Tradebook, on the other hand, has dynamic execution consulting which includes flexible order delivery solutions, pre-trade analysis and tools, real-time trade implementation analytics and alerts as well as post trade analysis. It also offers trading workflow consultations, customised client workflow solutions, education and training,
Best Execution | Spring 2013
“I think it will become more important because buyside traders are focusing more on the value that their brokers are creating.”
Adam Toms, Instinet Europe
market structure and regulatory commentary plus trade optimisation analysis and feedback “Execution advisory services started on the
programme-trading side with pre and post- trade reporting,” says Francois Banneville, global head of execution services at Société Générale. “Before you executed the order you would look at the names, illiquidity, size and the best way to execute the program. Today, it is trickier because the markets are more complex and fragmented with different exchanges, dark pools and broker crossing networks. As a result, execution advisory services are much more technical and quantitative and linked to the microstructure. Clients want much more detail, a greater understanding of what makes prices move and more analysis on their trades. There is also a much greater awareness of benchmarks and performances. We look at up to 50 parameters and statistical indicators when we execute an order.”
Chris Jackson, EMEA head of execution sales also notes that high frequency trading and regulation have created a much more challenging environment: “The terms of TCA have become far more complex – historically relatively few tools were available – VWAP and Implementation Shortfall being two of the most prevalent.” In recent years though, in an effort to reconcile opposing variables like market impact and time risk, TCA providers have developed increasingly complex measures often relying on complex and obscure proprietary calculations. “This has led to more rather than less confusion and uncertainty around what constitutes good execution.” “We are able to analyse a client’s trading style and work with them to customise our trading platform to suit these objectives. We’ve worked
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