Buyside traders think that the world of execution-only brokerage is ripe for consolidation.
At a recent invitation-only forum sponsored by agency broker Bloomberg Tradebook, 76 percent of buyside traders in attendance said there will be fewer agency brokers in the future. Agency brokers, in the minds of the buyside, must provide other services besides trading in order to differentiate themselves, or otherwise face extinction.
"Panelists said agency brokers cannot just be execution-only, but must provide the buyside with actionable, independent research and trading technology that aids workflow," Rob Shapiro, global head of trading and execution consulting for Bloomberg Tradebook, told Traders Magazine.
The event, "The Future of the Buyside Trader," was held on July 21 in New York and was attended by 40 buysiders. According to Shapiro, the confab was held so the buyside could exchange ideas on new trends in electronic and automated trading processes.
And Shapiro said Bloomberg Tradebook wants to be part of the discussion about how the buyside trading desk evolves. That’s partly because both he and company president and chief executive Ray Tierney were previously on the buyside.
"Ray comes from a buyside firm, as do I, so we bring that buyside perspective. But, we want to hear what the rest of the buyside is interested in," Shapiro said.
Buyside panelists said the most important factors in choosing an agency broker are the independent and actionable research they provide, as well as the market color they can add. Any firm that produces unique trade ideas or helps the buyside generate alpha will get their orders, attendees said. The desire for research or ideas even trumps the brokers’ ability to provide liquidity.
Shapiro believes the reason for the demand shift to research from liquidity stems from the numerous trading tools the buyside has at its disposal. "They [buysiders] are saying ‘give me something I don’t have enough of. I want workflow solutions or trade ideas’ not more places to trade."
Buyside executives said their future success depends on access to better algorithms and workflow integration, as well as education. Furthermore, the buyside is increasingly looking for real-time transaction cost analysis and end-of-day trade reports to provide transparency to their clients.
Shapiro said buyside conversations also centered on how broker desks must evolve into specialized and uniquely trained consultants. Consequently, for example, each trader needs to be able to explain how a smart order router works or understand the FIX protocol. "I had not heard this before," he said.
"The brokerage business has evolved to a point where trading desks need to be well-trained in the realm of electronic trading, the mathematics behind algorithms, market structure, and more," Shapiro said, "in order to provide value back to buyside firms."
