Brokers globally are anticipating a surge in demand for customised algorithms from their buy-side counterparts, according to research.
A report from Greenwich Associates exploring the evolution of equities sell-side execution technology found that brokers expect 48% of their clients to ask for more customised order-handling logic over the course of the next year.
With almost half of buy-side clients looking for customised algo solutions compared to just 27% last year, Greenwich Associates said the increase reflects how fast equity execution technology is evolving and how hard brokers must work to keep pace.
“Today, armed with new insight and analysis, buy-side traders have a much clearer view about the types and timing of strategies they want to use, the order types that work best and the venues they want to access,” said Richard Johnson, vice president of Greenwich Associates market structure and technology and author of the report. “All of this places an increasing demand on the broker to accommodate their clients’ order-handling requirements.”
Historically, most bulge-bracket and agency electronic brokers have white-labelled their algorithmic services to other brokers, but relying on another broker for algo execution could limit the ability to provide customised order-handling logic to the buy-side.
In response to this, Greenwich Associates found that brokers are increasingly focused on offering customised algos, with 94% of electronic trading executives agreeing that customisation is an important part of their service model.
The report also estimates that around 73% of global equity flow is now executed electronically. Despite buy-side traders still routing a large proportion of their order flow via high-touch channels, many of these high touch orders are usually executed by sales traders using their algo desk’s services.
“Greenwich Associates estimates that 73% of global equity flows are executed electronically,” Johnson added. “This data point includes some less-developed global markets and for more liquid, developed markets the rate is likely over 90%.”
The report concluded that this highlights the need for the sell-side to have flexible and robust electronic trading infrastructure in place, even when electronic trading isn’t a core part of their client services.