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Outsourced Trading: Opportunity Amid Disruption
Traders Magazine Online News, March 4, 2019
Outsourced trading?
Where have you gone Gordon Gekko? Bud Fox?
Outsourcing – it has happened in so many industries. Much like manufacturing, customer service and staffing, trading is no longer a holdout but rather joining the list of industries seeing this phenomenon.
In the fourteen months since it went into effect, MiFID II has proven to be a disruptive force for the financial services industry, upending existing business models and ushering in a new era of scrutiny in how firms spend their money. In Europe, trading and research can no longer be sold together as one service; even in the U.S., the global impact of MiFID has led many firms to explore full unbundling, leading to difficult questions about which costs are necessary and what it means to seek best execution.
Where there is disruption, however, there is also opportunity for growth. In this case, that opportunity can be seen as buy-side traders and hedge fund managers are increasingly enlisting outsourced trading firms to help them navigate this new normal.
A recent survey of Traders Magazine readers, representing a broad spectrum of buy-and sell-side professionals, found that 28% work for firms that have either already outsourced some of their trading and back-office operations or are actively considering doing so. That may not sound like a big number, but given outsourced trading’s longstanding reputation as a niche service for hedge funds only, it qualifies as a significant figure.
Octavio Marenzi
Also, research consultancy Opimas noted that though outsourced trading desks have existed for some time, interest in such offerings has increased in recent years as the asset management industry faces increasing pressure in terms of fees, fund performance, and regulation. Octavio Marenzi, researcher at Opimas, said this is leading even larger asset managers to outsource at least part of their trading desks. He forecasts that by 2022 about 20% of investment managers with assets under management greater than US$50 billion will outsource some portion of their trading desks.
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