March 1, 2014

The New Topic

By Phil Albinus

Some unintended consequences from the credit crisis of 2008 and the regulations that followed have come to light. As former Aite Group analyst and current Traders columnist Robert Stowsky writes, big data has emerged as a major force for buyside firms. Fueled by the push for transparency and the need for better analytics, traders have more data at their fingertips than ever before. And this data is changing how they deal with the sellside.

In the past, the sellside provided research, trading and risk tools and other services the smaller buyside firms either had to buy or build for themselves. Everyone was happy with the arrangement, only if by "everyone" you mean the sellside. The buyside, it seems, was simmering and unsatisfied.

This vast data is not just for scoring the next big deal-buysiders are turning to big data and analytics to rate their brokers and their services, especially their research. Instead of just accepting the research and cutting a check each quarter, buyside firms are gathering their traders to rate the research and execution services from the sellside in relentlessly thorough scoring sessions. As one buysider told us, they don't hold back when rating the research for which they pay. If the quality slips, the buyside won't trade with that particular sellside firm maybe for the next few months until they get their research act together.

This is a total flip of the old sellside/buyside relationship. Now, with the commodification of electronic trading, trading technology and solid infrastructure, the buyside has taken the reins and this current arrangement isn't going away any time soon. In fact, the sellside is struggling to satisfy the buyside, as managing editor John D'Antona found out while reporting this month's cover story. John discovered that the buyside has a systematic method for analyzing the quality of the research and they are not scared to freeze out any sellside firms that do not meet their expectations and standards.

Also in this issue, Traders looks at the challenges of settling trades in the age of Dodd-Frank, Basel III and EMIR. Complex instruments like over-the-counter derivatives may still be a headache but the clearing houses have ideas on how to handle this call to action. And in this issue, Traders interviews the team behind J.P. Morgan's rebuilt electronic trading business. If anyone knows what's on the minds of the buyside, it's these guys. Finally, we also look at the new MAKE algo from Instinet and how FX traders are demanding better transactional cost analysis.

As we have reported in the past, the buyside is calling the shots and they expect their voices to be heard. You can find some of those demands here in the pages of Traders and online at www.tradersonline.com. Because this dialogue is far from over.

Phil Albinus

@philalbinus on Twitter

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