Algorithmic trading capability is the biggest factor for buy-siders when selecting their brokers, according to results from theTRADEnews.com’s August poll.
In one of the closest poll results yet, algo trading edged ahead of other services and was seen as the most important criteria for broker selection by 27.18% of respondents.
Fabien Orève, head of global trading at Dexia Asset Management, said regulatory pressure for greater transparency in the past year is driving buy-side scrutiny of algorithmic offerings.
“Today, we really need to ensure that our trading activities are transparent and also ensure that we use algos that are safe,” he explained. “For this reason, we need to work with brokers that actively invest in their technology and offer features such as risk limits.”
High-touch services were not far behind, seen as the main factor affecting broker selection for 26.21% of buy-side traders. High-touch has traditionally been a major focus for buy-siders, though as markets have become increasingly electronic more traders have increased their focus on algorithms and other low-touch technology services.
Citi’s head of EMEA execution sales, Chris Jackson, said that, in the current market environment, traders are particularly in need of the high-touch services brokers can offer them.
“What the buy-side really values at the moment is liquidity above anything else and a high-touch relationship is often able to provide meaningful input on challenging liquidity situations, which isn’t really possible with electronic trades."
“Similarly, aspects such as market and trading strategy and advisory services are all important and come as part of a high-touch service,” he added.
The very equal distribution of votes for both high- and low-touch services is largely due to most buy-siders requiring both services depending on their particular execution needs at a given time, Orève added.
In third place, 25.24% of respondents selected breadth of connectivity as their main focus in broker selection, while the lowest priority for buy-siders was quality of research, with 21.36% votes.
While research is seen as an important area for asset managers, regulatory moves to unbundle research payments from commissions and open up the market to competition mean that brokers are not necessarily the primary providers of research as they once were.
“The traditional research model for brokers is being challenged by commission sharing agreements,” explains Orève. “For us, it’s important that we are able to access tailor-made research products and also pull in a very wide range of research from diverse sources, including brokers and third-party research providers.”