Buy-side continue shift towards collaborative dark order routing

Buy-side institutions are less reliant on brokers and other buy-side firms to route dark orders, opting for a more collaborative approach.

Buy-side firms in the US are shifting control of dark order routing from brokers or other buy-side firms towards a more collaborative approach that includes third party analytics specialists, according to research from TABB Group   

A poll of 100 heads of trading revealed an increase in the number of buy-side institutions working with brokers and third-party analytics firms, to improve execution quality and dark order routing effectiveness.

As of 2015, 56% of US buy-side firms now take this approach to dark order routing, compared to 43% in 2014.

The report suggested that the shift stems from the “portability of order flow across venues in which undesirable counterparties/liquidity readily moves from one venue to the next.”

One large asset manager explained it seeks brokers that have a data-driven approach when routing to dark venues.

It said: “They should use things like fill rates and execution quality to decide whether they should continue to route there.”

TABB said some buy-side firms have completed real-time efforts to normalise and review routing and execution quality, but the data collection process has evolved into a post-trade tool to analyse partners’ performance.

Other statistics from the report revealed a significant shift in the number of buy-side institutions that are satisfied with the level of transparency received from their brokers.

In 2014, only 28% of respondents said they were completely satisfied, but in 2015 this increased to 51%.