Managers fret over loss of broker service


Managers fret over loss of broker service

http://www.efinancialnews.com/story/2013-06-18/us-buyside-wary-of-high-and-low-touch-convergence-woodbine?omref=email_NewsUpdate

The US buyside broadly favours the sellside’s increasingly holistic approach to serving their equity trading needs, but is concerned that the move to combine high and low-touch trading may compromise the service they receive.

Managers fret over loss of broker service

Although 85% of senior and head traders at US buyside firms prefer an integrated team of high and low-touch traders, such teams need to be carefully constructed, according to a survey of 41 senior and head traders by capital markets consultancy Woodbine Associates.

The combination of electronic – or low-touch – trading services, with relationship-driven – or high-touch – sales traders for equities is becoming increasingly common because brokers are under pressure to reduce costs as trading volumes have failed to recover to pre-crisis levels.

Goldman Sachs, US broker dealer Knight Capital – which is close to being acquired by electronic market making firm Getco – and Citi are among the firms that have sought closer ties between their high- and low-touch desks in recent months.

Speaking to Financial News, Matt Samelson, principal at Woodbine Associates and author of the report, said: “Although there has been pressure on the sellside to reduce headcount and coverage, US brokers are experimenting with how to best serve their buyside clients. All of the buyside firms we questioned wanted a service that offers them the broadest and most efficient access to liquidity, without wasting their time.”

 Mark Kuzminskas, head of equity trading at Robeco Investment Management, added: “The convergence of brokers’ high- and low-touch services may appear to be a more efficient coverage model, but the effectiveness of this transition depends on us clearly defining the parameters of our relationship with that broker. Any broker looking to offer us a value-added service in this way also needs to fully understand our trading methodology and coverage expectations.”

Around a third (32%) of those surveyed said there was room for improvement in how separate trading desks collaborated, but 44% believed closer ties between low- and high-touch desks “was a recipe for compromise and abuse”.

Concerns were even more prevalent when survey respondents were asked for their view on using a single point of contact at a broker to service both sales trading and electronic trading flows, with 84% saying it could have a negative impact on the service they receive.

Of the 84%, the primary worry was the risk of a diminished service by brokers – voted for by 47% of those questioned – followed by the potential to lose anonymity, cited by 37% of respondents.

 

Electronic trading allows buyside traders to send orders directly to the market, via a broker’s infrastructure, allowing their orders to stay anonymous and avoid market impact. If electronic flows are visible to sales traders, some buyside firms believe this anonymity could be compromised.

“There are definitely concerns on integrity. If buyside firms expose their orders to a wider range of trading desks, they need to be assured their information will not be abused,” said Samelson.

“It’s not a matter of haphazardly combining groups. The view among buyside firms is that the market is too complicated for one person to do all these specialised functions well. Brokers should be looking at ways to consolidate equity trading desks, but the resulting service needs to be client-specific,” he added.

— write to anish.puaar@dowjones.com and follow on Twitter @anishpuaar

 
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About carlarweir
I am a Cross Asset FIX Connectivity SME working for international banks. i also sit on the FIX Protocol Ltd Global Steering Committee, and am Co-Chair of the Global Cross Asset Committee. I also have a very strong background in Mobile Telephony, Cloud computing, SaaS, IaaS, PaaS, Big Data, innovation, and am a pioneer in Pseudolite technology.

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