Buy-side traders consider execution consulting services to be a crucial element of broker service but currently find that requests to brokers for bespoke analysis are far too slow.
The findings come as part of a report by consultancy Aite Group in conjunction with analytics provider Streambase.
The study involved qualitative analysis of 15 leading brokers, and found that 87% of those questioned consider execution consulting to be a key differentiator in the services offered to the buy-side.
Aite identifies key execution consulting services as high-touch advisory services that help clients to understand market conditions and optimise their electronic trading strategies accordingly, analysis into the quality of trade execution, risk and transaction costs, and real-time execution tool to track prevailing market conditions.
Around 79% of respondents believed active alerting is the most important execution consulting tool, while over half identified pre- and post-trade analysis, a single view of client data and real-time transaction cost analysis as other important elements.
However, the majority of those questioned added that their current service levels are unacceptable. Whereas most brokers respond to their buy-side clients within five days, many expect near real-time support and responses. The report also considers that the regulatory drive towards greater transparency has imposed considerable requirements on brokers, also leading to expectations of real time risk management, reporting and surveillance.
“The main challenge for tier one and tier two brokers is that the decentralised trading infrastructure creates complexity and latency for firms seeking to identify and address issues during the lifecycle of a trade,” said Sang Lee, managing partner at Aite Group. “Many brokers have dozens of systems connected to various liquidity venues, data sources and databases. The key to building a scalable and sustainable execution consulting service is to effectively integrate these systems and deliver customised and relevant information to sales traders, quants, risk managers and analysts in real-time.”
“The fact that execution consulting services has now eclipsed the importance of broker-supplied algorithms is remarkable,” added Mark Palmer, CEO at StreamBase, “With automated trading levels at an all-time high, broker-dealers now must differentiate themselves based on the real-time insight they can provide buy-side clients.”