While outsourced trading has been prevalent with Hedge Funds and at the smaller end of the Asset Management AUM spectrum for many years, more recently there has been an increased interest from mid- and larger-sized investment managers in outsourcing some or all or their trading requirement, according to Rebecca Crowe, COO of BNY Markets & Execution Services.
Asset Managers have long been comfortable with outsourcing post-trade operations to “trusted providers such as BNY Mellon”, and the evolution toward trading, where there is a clear value-add, is the next step on that journey, she said.
Crowe told Traders Magazine that remote work practices through the pandemic also supported that physical proximity of traders and “portfolio managers was not a necessary ingredient for excellent performance”.
On Wednesday, January 25, BNY Mellon announced a new outsourced trading offering for buy-side institutions globally.
The offering by BNY Mellon Capital Markets that will be powered by xBK, the buy-side trading division, will give clients opportunities for operational and strategic efficiencies, savings and expansion.
When asked about benefits of outsourcing, Crowe said that trading costs are an important consideration, and an optimal implementation of outsourced trading can address this in a number of ways.
The outsourced or co-sourcing model can transform fixed costs to a variable service structure, Crowe explained.
“The scale of our Outsourced Trading platform makes the marginal cost of trading hard to match in-house,” she said.
In addition to reducing the explicit costs, optimizing execution outcomes can meaningfully impact the implicit cost of trading, she added.
“This where BNY Mellon leverages our scale and expertise across asset classes and markets,” she said.
Crowe added that the flexibility of an outsourcing arrangement is also a key benefit: seamless entry into new markets, coverage of regions outside of the in-house desk time zone, and efficiently implementing new investment strategies can all be supported without the need for investment in trading infrastructure and personnel.
“Ultimately the aim is to enable clients to focus on their unique investment strategies and business growth,” she stressed.
According to Crowe, BNY Mellon has significant expertise in supporting domestic and global trading across Equities, Fixed Income, Derivatives and Foreign Exchange.
Beginning in 2018, the Company overhauled its internal buy-side trading capabilities through investments in technology, analytics and reporting.
Today, BNY Mellon executes more than $1 trillion in volumes on average annually for their own Investment Management franchise.
“This unique heritage supported by the world’s largest custodian are unmatched,” said Crowe.
“The aim of BNY Mellon’s Outsourced Trading service is to deliver a best-in-class buy-side trading desk experience for our clients. We understand the needs of investment managers and the complexity of buy-side trading workflows, and have designed our solution around that expertise,” she added.
Commenting on the outlook for outsourced trading, Crowe said that on the heels of a very challenging year in 2022, the investment management community will “understandably take a fresh look at their imperatives for growth and efficiency”.
“Outsourced trading is a well-established lever for managers below the $5bn AUM mark, and we expect both full and partial outsourcing to be an important opportunity for mid- and larger-sized Investment Managers in this cycle,” she said.
“The introduction of BNY Mellon’s sophisticated offering is very well suited to support the scale and complexity of these larger institutions, and we are ready to meet clients wherever they are in their journey,” she added.
