Trading Desk : Multi-asset Trading


If a single desk can trade all liquid instruments for an asset manager, it could see significant cost and process efficiencies. Lynn Strongin Dodds reports.

The distinction between asset classes from a trading perspective is blurred at the highly-liquid end of the spectrum, argue some traders, allowing a single desk to trade all liquid instruments regardless of the asset class.

A 2018 report by Alignment Systems and FactSet entitled Evolution of the Multi-Asset Trading Desk, found, “Many buy-side firms with a centralised dealing desk have a number of ‘low-touch’ orders to which traders cannot add value” which it recommended should be sent for automated execution and passed downstream to settlement functions.

Equities and FX have been the poster children for rules-based low-touch or automated trading, with analyst firm Greenwich Associates finding up to 73% of equity flows across developed and emerging markets were handled low-touch, while in its report The Evolution of FX Algos: From ‘Nice to Have’ to ‘Need to Have’ it reported that the figure was around 80% of notional FX volume. However, even in these liquid asset classes, there are the harder to trade mid- to small-cap equities as well as emerging market currencies that require manual intervention.

Fixed income has been harder to trade in a low-touch way as the data needed to inform an execution algorithm is not available for many bonds. The ability to issue bonds ad hoc creates a large instrument universe, and bonds are most liquid when they are first issued, or on-the-run.

Technology under the workflow

To provide the triage needed to separate orders between execution styles, trading desks need to have the right order and execution management systems to reduce manual intervention in the workflow. To date, connectivity between systems has sometimes been limited.

Adam Toms, CEO of desktop connectivity provider OpenFin, says “[Firms] should give careful consideration to the shape of their trading desks, identify the components that can be interconnected and their ability to leverage big data in order to provide the insights they need in real-time which can help traders refine their tactics as they work the order.”

While an OMS is useful internally to route the order to the right desk, low-touch trading requires the trade to be routed and then feedback on the execution captured and brought back to the trader, which is the role of the EMS.

“This has and will continue to increase the demand for multi-asset class execution management systems (EMS) to be used in conjunction with the OMSs to create greater trading efficiency,” says Chris Hollands, head of North American and European sales and account management at TradingScreen.

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