Buy-side firms are using open platforms to customize and enhance their trading workflows, meaning they will be better placed to tackle the rapidly shifting competitive and regulatory landscape.
Buy-side traders at asset managers and hedge funds face unprecedented levels of change, not least from regulations such as MiFID II and advances in technology.
Faced with an ever-changing set of needs and challenges, traders must find ways to transact in a safe, compliant and efficient way.
Ultimately, it allows buy-side traders to connect, discover and build relationships.
The need for innovative solutions to buy-side trading challenges comes as competition between firms intensifies.
Assets under management (AUM) have reached record highs in the past year, but this hasn’t stopped revenues continuing their slow decline.
Investments in lower-fee passive index strategies are growing at the expense of more traditional actively managed portfolios, forcing firms to explore new avenues in order to bolster returns.
This includes expansion into alternatives and emerging markets.
Cost control is also paramount as firms focus on maximizing their bottom line performance, particularly in areas where they have a perceived competitive advantage.
Buy-side trading efficiencies
These shifting dynamics place increased demands on buy-side trading desks.
Record levels of AUM will result in larger positions, but competitive pressure dictates that trades are executed in ways that minimize costs.
Expansion into alternatives and emerging markets introduces pricing and liquidity challenges.
As firms look for ways to drive efficiency, traders with asset-specific expertise face the daunting task of assuming cross-asset trading responsibilities.
Quality data requirements
New regulatory requirements are compounding the challenges facing buy-side firms.
Following on from the implementation of the Dodd-Frank Act in the United States and MiFID II in Europe.
To meet this obligation, buy-side trading desks must enhance workflows across the full life cycle of a transaction — pre-trade price discovery, counterparty selection, execution mechanism, post-trade analysis and reporting.
Given the difficulty in determining market benchmarks for over-the-counter (OTC) trades, sourcing quality data is essential.
Buy-side trading technology
Competitive dynamics and regulatory requirements have increased the exposure of buy-side firms to advances in buy-side trading technology.
Improved vendor solutions for analysis, order management and execution make outsourcing to hosted or cloud delivered technologies attractive, particularly as they remove the headache and cost of maintaining legacy systems.
Time-to-market for new technologies has drastically reduced, and fintech innovations are pouring in with a range of capabilities such as regulatory compliance, transaction cost analysis and asset valuation.
Trade automation is a priority for many firms and use of execution algorithms is on the rise.
With the onslaught of new technologies, trading desks must make decisions about which solutions to adopt. However, with such varied needs, there is no longer a one-size fits all approach.
Open platform benefits
Open platforms offer buy-side firms powerful capabilities for navigating the changing trading landscape.
With tools to source and distribute liquidity across borders and markets, traders on an open platform can easily accommodate changes to portfolio compositions and cross-asset trading requirements.
Open platforms easily integrate premium data across the trade workflow.
This enables traders to make pre-trade decisions on the same prices used for execution and post-trade analysis, greatly simplifying adherence to new best execution regulations.
With streamlined onboarding for new technology vendors, traders on an open platform also benefit from choice and lower total cost of ownership, as they can select preferred providers for pre-trade, execution and post-trade services.
In the face of unprecedented changes, buy-side firms leveraging an open platform can confidently adapt and enhance their trading workflow to gain a competitive edge.