2018 Buy-Side Trading Review – The three “A’s”

As 2018 and the first year of MiFID II draws to a close – something for which quite a few market participants might be feeling considerable relief, here is a summary of what we at TradingScreen (TS) have witnessed from our numerous interactions with the institutional buy-side.

First of all, and very encouragingly from the point of view of an EMS vendor, there has been a continuation of the higher level of EMS system review and RFPs for more than a decade i.e. pre Credit crunch. This hasn’t come as a huge surprise given the much increased best execution, record keeping, regulatory reporting and other compliance obligations that MiFID II has placed firmly on the buy-side. Economics have also played their part with further consolidation of buy-side trading desks necessitating the search for execution tools that are as capable and as comfortable dealing with Listed as they are OTC instruments, and their different trading protocols.

Simplifying and synthesising the preamble above, 2018 has been the year of the three “A’s”: Analytics, Automation and Aggregation. They each have played their own decisive roles but have also been highly interconnected and interrelated.

Analytics

Some might more broadly define this category as “data” but given it is actually driving buy-side traders’ decision-making at every stage of the order life cycle, the consequent actions makes “analytics” a more apt term. The drive for richer and more real-time analytics is obviously a function of best execution requirements but what has been very clear in 2018 is the buy-side’s increasing insistence on their tighter integration into the trading workflow. As an example, best practice now dictates their availability and synchronicity with live order blotters and the openness and flexibility to extract them post trade and ideally, though rarely embedded in the EMS, run them against historical tick-by-tick data. Pre-trade analytics within EMSs have had their origins from the offerings of the bulge bracket investment banks, but there has been greater demand for independent, broker neutral provision and greater emphasis on in-trade analytics. Equally, the buy-side has been looking for equivalent pre-trade analytics in the Fixed Income world including the streaming of axes, liquidity scoring tools and similar bond ‘smart’ searches.

Automation

The much greater availability within the EMS of the last category, Analytics, coupled with the continuing consolidation of buy-side trading desks have respectively, been a facilitator, and a driver of automation. Almost all of the pitches in which we have been fortunate enough to have been involved in 2018 have devoted a major focus to it. Plainly speaking, buy-side trading desks now have to do more with less and hence have been looking for tools to increase their productivity whilst simultaneously optimising their quest for best execution. Highly configurable auto-routing tools have been the order of the day and again, the expectation has been for them to be as capable and comfortable in the Listed as in the OTC domain. Equally, their utility has been valued more highly through their ability to interact with the newer mechanisms through which buy-side traders have been directing their order flow, namely via algo wheels, and into the fast growing Block Venues and their conditional order workflows. Buy-side traders expect to have much greater and more finite control of their order routing choices, and it is only through sophisticated and highly interactive automation that this is becoming possible.

Aggregation

The simultaneous demands of best execution across the asset classes, broker neutrality, front office IT budget constraints and streamlined STP have collectively driven the system aggregation imperative. The buy-side has placed a huge emphasis in their EMS selection on the ability of one platform to:

• Provide best-of-breed access, functionality and execution performance for all of the asset classes (Listed and OTC)
• Centralise the receipt and aggregation, where appropriate, of inbound order flow from multiple dealing centres, sometimes involving multiple OMSs
• Capture and to record the numerous data and analytics generated throughout the order life cycle and make them accessible via flexible APIs such as REST
• Incorporate an independent and consistent TCA module

The shape of things to come…

Without wanting to blow our own trumpet too much, we were obviously delighted to win the 2018 EMS innovation of the year award at the very recent The Trade’s Leaders In Trading awards dinner. The awards are based purely on the client survey results that The Trade collects and collates and hence we believe are a genuine reflection of the strides our TradeSmart EMS has made. We remain committed to the R&D cause and have already progressed along the development path on several, new and exciting features and enhancements. On the Listed side, the highlights will be a more intuitive and manipulable program trading module and a more interoperable and intelligent level of OMS integration with our Alliance Partner, SimCorp. In Fixed Income, the focus will be on maximising the value of the user activity data we collect by making it available for pre-trade analysis and post-trade TCA through DataLake. Finally, BidFX will be further building out sophisticated flow automation tools in their next generation FX EMS.