This research analyses the significant changes to the ways in which trades can now be executed; changes primarily driven by regulatory change and the opportunity to achieve better dealing outcomes at a cheaper cost to the client for lower operational risk:
- Regulators have taken away the stock exchange monopolies, creating increased competition and market fragmentation.
- They have also increased scrutiny on the dealing function by requiring Best Execution policies.
- Firms also have to be more transparent in describing the way in which they spend client commission. Clients and investment consultants are becoming more knowledgeable about the dealing process and are starting to check that firms are looking at dealing efficiencies and careful spending of client commission.
- Technological advancements are giving firms greater ability to participate more actively in the market.
This report looks at the growing number of dealing methods and trading venues available to the buy-side dealer:
- A growing number of trades are executed using broker algorithms and direct market methods at a much lower commission rate.
- Multi-lateral trading facilities; buy-side firms can access these venues to search for liquidity.
- Smart Order Routing technology is being used to aggregate markets and to determine the best venue(s) to route the order.
- It is possible to access alternative trading methods through most leading Order Management Systems. However, Execution Management Systems are growing in popularity as the primary tool for the buy-side dealer.
The research analyses these methods and asks why these are being adopted – whether it be an increase in competitive advantage or peer pressure. The report then explores the reasons why firms are taking on the costs and regulatory risk of executing orders for increased costs in systems, people and training for a relatively small gain in performance – and sets out the alternative options for investment managers to gain efficiency.
Contact: Clare Vincent-Silk
|Management Summary 1
1.0 Introduction 3
2.0 Drivers for change 5
What is the buy-side dealer trying to achieve? 6
Internal drivers for change 7
The effect of regulatory change 9
Pressure from clients 12
Other regions 13
3.0 The dealing world of 2008 14
Smart Order Routing (SOR)
The OMS/EMS debate
4.0 Measuring 29
Best execution – and transaction costs
What TCA measures
The requirements for TCA
Are the asset owners interested?
5.0 Managing 36
Best Execution Policies
Dealing team structures
Global equities and globalisation
Adoption of new trading methods
Do buy-side firms need an EMS?
Skill sets required
Executive ownership of dealing
Commission and unbundling
6.0 Outsourcing dealing 60
Up-take of outsourced dealing services
7.0 The dealing desk of the future 66