Buy-side ramps up adoption of aggregation tools as consolidation continues

Jefferies’ head of electronic and program trading for EMEA, Ben Springett, tells The TRADE that increasingly large firms are unintentionally competing with themselves.

Demand for aggregation workflow tools is ramping up across the buy-side as consolidation continues to grip the industry.

Speaking to The TRADE, head of electronic and program trading for EMEA at investment bank Jefferies, Ben Springett, said order aggregation had become central for many buy-side firms in order to prevent them negatively impacting themselves by trading the same names across newly acquired and fragmented business divisions.

“We’ve seen a greater complication of workflow come in and part of that is driven by the level of M&A on the buy-side. You’ve got organisations that have swallowed other organisations and they’re trading on different infrastructure or they’re trading for more funds,” he said.

“The challenges become greater and simple things like aggregation of order flow on five orders in the same name from different parts of your firm at different times are becoming increasingly popular. You don’t want to be trading five orders and competing against yourself. You would aggregate those into one piece and trade it more sensibly to manage the price impact on the whole piece.”

Consolidation has continued to ramp up across the buy-side in recent years as economies of scale have become increasingly important to survive in today’s financial markets. Most recent was the £615 million of acquisition of BMO GAM by Columbia Threadneedle in March earlier this year. Amundi also recently completed its acquisition of Lyxor Asset Management.

Jefferies in particular has focused its efforts on developing algorithms to address issues posed by consolidation. The bank confirmed that workflow aggregation in the Middle East and when trading ID markets was also becoming increasingly needed by the buy-side.

“The ability to aggregate in an effective manner has been crucial. When trading Saudi Arabia every order has to have its own investor ID so that trading on the market can be tied back to an individual account,” Springett added. “We can still offer some degree of aggregation or aggregation light service in that space. That’s the thing we’ve seen from the buy-side is a greater demand for these workflow type solutions.”

Jefferies has also seen a ramp up in the use of algo wheel technology, which now accounts for 40% of its electronic trading flow.

Merit-based broker wheel technology assesses and then assigns a level of trade difficulty to a parent order. It then allocates and systematically routes child orders to brokers based on their performance in that difficulty category. They have grown in popularity in recent years in light of best execution regulatory requirements under MiFID II.

“The ability to accurately assess counterparties within that process, to select appropriate trading strategies and to optimise the whole broader execution of the buy-side pad has all been driven by trends around data technology investments,” Springett explained. “That has resulted in a higher and higher bar being placed upon the brokers to either evolve and invest with that and succeed or don’t and see a general degradation of business/capabilities.”