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Automated trading for the orders that matter

Ian Mawdsley
Ian Mawdsley
Head of Equities, EMEA, Refinitiv

Advances in automated trading are allowing buy-side desks to focus on the trades requiring greater expertise. What are the advantages of rules-based order routing as we continue to help our clients find new ways to achieve efficiencies?

  1. Advances in automated trading include the use of rules-based order routing to determine whether trades are executed automatically or reserved for manual intervention.
  2. A key advantage of rules-based automated trading is that it enables buy-side desks to focus on the high-value trades that demand their expertise.
  3. Rules-based order routing is one of the ways Refinitiv is seeking to add value by delivering more complete, cost-effective and integrated solutions.

Automated trading has steadily evolved over the past 15 years, enabling exponential increases in volume with substantially reduced headcounts. These solutions have enabled buy-side firms to meet substantially more complex regulatory demands and address their ever-present need to reduce costs.

Automated trading solutions have not only become widely adopted, they have grown in sophistication, laying the groundwork for further advances to come.

Three types of automated trading

With the longest tenure, broker algo trading is arguably the best-known and most widely employed type of automated trading. It is commonly used in the execution of larger offers, the management of execution risk and across a wide range of “black box” approaches to multi-asset-class strategies.

Far more recently, robo-advisors and fully automated, decision-making trading systems are stepping into roles traditionally occupied by portfolio managers and traders. Driven by advances in artificial intelligence and machine learning, these systems automatically craft portfolios based on risk parameters, sector exposure, and other factors.

Conditional, or rules-based, trading is also making steady advances on buy-side trading desks. Sitting in between the order system and execution system, conditional trading allows users to set a broad range of order trade routing rules, pre-determining which trades to execute automatically and which to reserve for manual intervention.

Rules-based systems can also be configured to help comply with best execution rules as defined by MiFID II, routing orders to a defined set of brokers and streamlining the overall process.

Benefits of rules-based automation

A key advantage of rules-based automation for the buy-side is that it removes the emotion from trading while speeding up execution.

In equities, for example, one of the most common trading rules is based on the percentage of average daily volume. Rules of this sort take small orders from portfolio managers, in order to take them off traders’ books, allowing the trading desk to focus more of their attention on the slightly harder to trade, more illiquid orders.

A move towards multi-asset class

Until quite recently, rules-based systems have primarily been utilized in equity trading. However, as buy-side trading desks become increasingly multi-asset class focused, there is a need for automation to follow.

The ultimate goal is to fully automate trading workflows across all asset classes. At Refinitiv, we already cover conditional orders on listed products, across asset classes, and we will continue to grow coverage.

Refocusing resources

Many routine trades do not provide traders with the opportunity to add significant value. Automated trading solutions such as rules-based order routing provide flexible, cost-efficient ways to automate those trades, so buy-side desks can focus their attention on the high-value orders that demand their expertise, and spend their time where it can have the greatest impact.

At Refinitiv, we believe that it is important for the buy-side to gain these efficiencies to remain competitive in ever more challenging markets.

Rules-based order routing is just one of the new ways we seek to add value by delivering more complete, cost-effective and integrated solutions, so our clients can keep their focus on alpha generation.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Refinitiv, or any of its respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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