If you’ve been around the world of institutional trading for any period of time you’ve certainly witnessed many changes relating to the use of technology to assist with trading automation. Everyone has these stories, and mine starts back in the early 1990’s on the equities side where everything was a phone call. From placing the order, to getting fill information, to providing account allocations for the block trade. Since that time we’ve witnessed major technology and process improvements across the trade cycle such that when looking in the rear-view mirror the past is just a blur.
A recent whitepaper by CEB TowerGroup
covers how the mix of high- and low-touch trading is changing on the buy side and sell side. The report describes how the evolving role of technology in the world of institutional equity trading has enabled significant change in how investment managers (“the buy side”) and investment banks and broker/dealers (“the sell side”) interact.
Two working models exist around the interaction between the buy side and the sell side: the traditional high-touch and the more recently introduced low-touch trading models. Collectively, the two models support different needs and provide unique services, as the sell side looks to add value to buy-side clients and ultimately capture order flow.
The key findings from this report include:
- The buy-side trading desk is more actively involved with the trading process, has become more sophisticated, and has many tools to assist with accessing liquidity.
- Low-touch trading has exploded, yet the need for more traditional, high-touch trading is not going away any time soon.
- Buy-side desks have raised the bar with regard to sell-side services and they expect superior service across both low-touch and high-touch trading.
- The buy side is vocal about the services valued and what it is willing to pay for; creating a dialogue that helps the sell side better understand how to go about servicing client needs.
Ultimately, the key challenge for the buy-side trading desk is to efficiently find liquidity and add value for the buy-side portfolios. To this end, an abundance of tools and services are available to them. They must continue to use available and emerging technology, apply their market knowledge and expertise, and employ both the high-touch and low-touch trading offerings of their sell-side partners.
Although there are some who talk about the disappearance of high-touch trading, our conversations convey that it’s really about the buy side utilizing a mix of high-touch and low-touch services to meet their diverse needs.