Order handling practices rated as the top concern for the buy-side in quarterly broker reviews, with 40% of respondents to the latest poll on theTRADEnews.com highlighting continued concern over the sell-side's ability to balance client interests with venue rebates.
The August poll gauged the primary focus of the buy-side during quarterly broker reviews, with responses indicating a drive for greater transparency on how and why orders are traded.
While order handling practices received 39.66%, the three other options all received near-identical results, with greater transparency of costs and value-added services receiving 20.69% each and consolidation of flow coming in last with 18.97%.
Mark Denny, head of trading at asset manager Investec, believes the role of venues in luring brokers is still a key concern for the buy-side.
“Recent regulation has opened up increased competition that has allowed dark pools and other venues into the market and there are various incentives that are allowed to attract business," he said. "Brokers are faced with a trade off between execution and how they look after their clients. The market has quickly caught on to the fact that the buy side knows what is happening and brokers have responded accordingly."
Denny added easier access to liquidity would remain the most important factor for him, with consolidation of flow becoming a major issue.
“Some brokers are internally combining program trading desks with electronic trading desks and that’s seen a consolidation of flow which should help access liquidity effectively,” he said.
According to one head at a global investment bank, pressure for all parties in the trading cycle to better understand the details of the process may have led to order handling practices topping the poll.
“After some of the market conflict of interest cases that have come up recently, a lot of questions have been raised about due diligence and knowing exactly how algos work and having a better understanding of the entire process," he said. “The results show that people found it a tough question to answer, which reflects how important all of those categories are at the moment."
He added that many of the recent broker reviews he has been involved in tend to be solely based on value-added services. "What we’re paid for is increasingly our research and other services to improve trading,” he said.
Daryn Kutner, CEO of agency broker Olivetree Securities, agreed, assuming value-added services would top the list, but cited current market conditions as extending the conflict between the buy- and sell-side.
“The changes in market structure are inevitably creating an increased level of tension between brokers and clients. With implementation costs rising, clients will understandably raise questions regarding information slippage.
“There is at the heart of this discussion a significant conflict of interest between the sell-side and the buy-side. The sell-side is motivated to have broad dissemination of information regarding order flow, to cross stock internally and reduce exchange fees. The buy-side is better served by limited information sharing,” Kutner said.