Buy-side traders look to become algo experts ahead of MiFID II

MiFID II has increased expectations for the buy-side to truly understand algorithms they use. 

Traders on the buy-side have been increasing their efforts to gain knowledge and understanding of the algorithms they use in order to satisfy best execution requirements under MiFID II. 

Speaking at The TRADE’s MiFID II Checklist event in London this week, a panel discussed how the use of algorithms has shifted ahead of MiFID II.

“There are more expectations for the buy-side to have a solid understanding of how algorithms work and how they interact in certain environments,” said Lloyd Satchwell, managing director at AlgoClarity.

Rob Boardman, CEO at ITG Europe, agreed and added this expectation is causing buy-side firms to change their way they approach algorithm selection ahead of MiFID II and develop a greater understanding of how they work.

“The buy-side need to certify they have understanding of algorithms, but most buy-side firms want to make sure they are exemplary in this area… the level of understanding needed has reached a new level with MiFID II. We have buy-side firms seeking advanced training and consulting services specifically for algorithms,” Boardman added. 

The panel agreed it is difficult to truly become an expert with so many algorithmic trading products in the market, but the impact of MiFID II in terms of availability of algorithms will likely see brokers reduce the amount of products they offer. 

“Once that number is compressed the buy-side will be more able to truly claim to be experts of the algorithms they use,” Boardman said.