The buy-side’s biggest obstacles in evaluating best execution revolve around analyzing algo, venue and overall TCA data, according to Coalition Greenwich.
Buy-side equity traders are spending increasing amounts of time searching for liquidity in fragmented markets, and they are doing so amid constrained budgets and smaller team sizes.
These challenges, combined with regulatory changes, are increasing pressure on buy-side trading desks to automate their workflows, said Jesse Forster, Senior Analyst at Coalition Greenwich Market Structure & Technology and author of The Globalization of Algorithmic Equity Trading: A Buy-Side View.
According to Coalition Greenwich research, electronic trading has grown to 42% of U.S. and 44% of the European equity market commissions.
In three years, managers expect this to grow to 48% and 50%, respectively, the report found.
According to the findings, 69% of buy-side traders say ease of use, reliability and quality of support are the most important selection criteria for low-touch market access.
The buy-side traders participating in a new study from Coalition Greenwich are devoting significant time to evaluating the performance of algorithms, as measured by metrics like market impact minimization, implementation cost shortfall and internal VWAP.
Forster said that differences in venue and order types can lead to variations in algorithmic functionality when trading in different markets.
According to study participants, successful algorithmic trading providers will need to build reliable and easy-to-use platforms, backed by high quality support, with access to segmented dark and conditional liquidity as differentiators.
The buy-side also puts significant value on controlling the ability to route (or not route) to particular venues.
Approximately 80% of traders, whether by market-traded or office location, say this is very or somewhat important.
“While the buy-side may not be as interested in micromanaging algorithmic logic—especially via an order ticket—they do want control over which venues they access,” Forster said.
