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Finding the right partner for a sell-side trading workflow

Bryan Labelle
Bryan Labelle
Director, Trading Capabilities, Refinitiv

What are the major factors that small and medium broker dealers need to consider when selecting a partner for a sell-side trading workflow?


  1. While it may seem as if it is perfect competition with about 3,500 registered broker dealers in the U.S., the lion’s share of people, order flow and clients are snapped up by larger firms.
  2. The best approach is a technology hybrid solution, taking into account the requirements of a broker dealer and their clients.
  3. Fintech companies that service broker dealers are also experiencing an incredible shift as competition increases.

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According the 2020 FINRA Industry Snapshot, there are about 3,500 registered broker dealers in the U.S.

To an economist unfamiliar with the industry, this could be hastily viewed as a shining example of perfect competition. It could be perceived that supply is provided by an even landscape of producers who have freedom of entry and no impact on consumer price. But practice is nearly always nuanced when compared with theory, and this industry is certainly no exception.

You don’t need to dig too deep to realise the dynamic of this sector is complex.

Only a handful (0.5 percent) of these brokers are considered big firms with 500 or more registered reps. Yet the lion’s share of people, order flow, and clients are consumed by larger firms, leaving a minority share of the industry pie to be distributed among the remaining 99.5 percent of the broker dealers.

It could be argued that freedom of entry is still quite prevalent in this industry, but a decade-long trend indicates a greater number of these firms (disproportionately small to medium broker dealers) are closing their doors for business.

Autex Trade Route is one of the world’s largest global FIX-based order-routing networks, delivering order flow of over 40 billion shares per day

Difficulties facing small to medium broker dealers

Let’s focus on the small to medium shops, as this is the cohort that is facing the stiffest headwinds.

The contention of cost, years of suppressed volatility (with the exception of 2020) and greater scrutiny of commission fees are some of the variables that these institutions face.

The industry has seen a general downward trend in market participants due to insolvencies and consolidation and it is the smaller and medium broker dealers that are bearing the brunt of this attrition.

As markets become even more automated, and geographical location becomes less relevant, it is continually more difficult to stand out in such a large field of competitors. Small to medium broker dealers must develop the deep niche expertise to stay relevant with their client base and to attract new clients.

Like any industry, trends will shift client demand, and distinguishing niches and expertise of today, may be obsolete tomorrow. As these broker dealers navigate the changing landscape, they must adjust and pivot their core business expertise to stay in front of the trends and remain competitive.

Given the intrinsic link of technology in contemporary trading, broker dealers require technology partners to be equally nimble and reactive to market changes while simultaneously keeping costs in check.

Watch: Refinitiv & Quod Financial – Next-gen trading tools for the sell-side

Shift in the fintech industry

Fintech companies that service broker dealers are also experiencing incredible shift in the competitive profile. On one hand, we have seen several large-scale consolidations where companies are growing their vertical touch points with their clients.

For example, many of the traditional order management systems (OMS) have stretched out into full fledged execution and position management functionality. Post-trade specialists are merging forces with front office specialists.

Many fintechs have gone even further and combined underlying FIX networks, content providers and analytics. You can quickly see the full picture coming together.

Simultaneously, we are also seeing dozens of new fintech firms entering the market.

With Bloomberg SSEOMS pulling out of the sell-side OMS space and ION/Fidessa changing its customer profile, it’s no surprise to see nascent fintechs exploiting the opportunities. Yet, the influx of new fintech entrants to the market continues even as broker dealers suffer commission erosion.

Fintechs entrants are unquestionably filling the gaps with functionally rich technology and an attractive price. However, this could come at an expense of the total cost of ownership (TCO) of the end-to-end workflow, which is not always easily measured.

Right balance of function, innovation, and costs

Let’s break the financial service tech companies into two camps, startup fintechs and large financial service technology companies.

The challenge for any broker dealer is to find the right balance of function, innovation, and costs.

It’s easy to assume that larger companies generally provide breadth of product and service but at the expense of both price tag and innovation. Alternatively, small fintechs are often coined for bringing innovation at a cheaper price tag but with a narrower scope of the overall workflow.

Having worked for both, I can attest that both these assumptions are frequently overestimated. There is no question smaller fintechs are bringing great tech to the market. But the a-la-cart register can run up quickly when you have to stitch two or more separate platforms together, especially if they don’t run their own FIX networks.

Larger tech companies have the full gamut of a sell-side’s workflow, which can greatly reduce total cost of ownership by ‘baking in’ connectivity costs, reducing regulatory reporting fees and eliminating duplicate market data costs.

Unified infrastructure

Of course, working with large technology providers does have its drawbacks.

Innovation is usually spread over a wide area, with isolated examples of cutting-edge tech. Small fintechs have the benefit of focused product investment and concentrating innovation. It’s important when deciding to work with a large tech provider to clearly understand how the end-to-end solution is put together.

Fully in-house developed workflows may have great integration across the order lifecycle but may lack pioneering functionality. Alternatively, a vendor whose tech stack is comprised of partnerships, acquisitions and in-house innovation may have a bit more of a ‘jumpy’ order lifecycle, but with much richer functionality at the various stages of the order.

The common benefit is that regardless of philosophy both vendor types should be able to offer a unified infrastructure of the client trading network, support, and ancillary operational functions such as billing. Managing multiple versions of these functions across several vendors requires effort and resources and can rack up costs that are often overlooked.

Watch: Perspectives Live – The Transformation of Sell-side Trading

Hybrid solution to evolving a sell-side trading workflow

Rarely is any approach to a problem a binary decision.

Most technology is best approached as a hybrid solution that will mould to evolving requirements of a broker dealer and their clients.

Starting with a large technology provider that has a broad basket of solutions could be a flexible- yet-cost-effective way to build out a productive technology strategy. Coopetition ensures that large providers are already partnered in some capacity with their competitors.

As a result, large vendors should be more amenable to their clients, slotting in specialised competitor solutions into the workflow while still passing on the big partner benefits. You may not find what you want at the big box store but you can always go to the boutique after!

Front to back sell-side trading workflow

Here at Refinitiv, an LSEG business, we have spent years putting together the front-to-back sell-side trading workflow to give what we believe is a compelling offering of functionality verses costs. Our philosophy has always been to strategically combine partnerships and acquisitions and tightly couple them to our vast array of connectivity and data.

Foundational to our sell-side offering is the award-winning Refinitiv Autex Trade Route (ATR). This is our flagship FIX network, with over 600 sell-side and 970 buy-side institutions plugged in.

Over the course of decades, ATR has built up an indomitable array of physical connectivity globally. Having an established FIX network as part of the core offering is a huge boost to the value of our partnerships. This is the backbone of efficient and unfettered access to the street.

Our partnership with Quod Financial, a sell-side OMS, provides our customers with a cutting-edge, award-winning order management trading platform. Clients get access to leading smart order routing, algos, market making and direct market access to name few.

Keeping up with FINRA regulatory reporting requirements requires focus and effort, so we’ve partnered with Xinthesys LLC to handle a wide offering of sell-side regulatory reports.

With decades of regulatory reporting experience, the Xinthesys ADEPT platform ensures broker dealers can focus on servicing their clients, leaving the regulatory reporting to the experts.

Finally, LSEG market data is what powers the end-to-end solution, ensuring consistency and price efficiency through the whole workflow. We understand cost pressures faced by broker dealers today, so ensuring functionality, access and data are priced for mutual success is top of the book.

Autex Trade Route is one of the world’s largest global FIX-based order-routing networks, delivering order flow of over 40 billion shares per day