Buy-side institutions are looking to add more technical expertise to their trading teams as the use of electronic trading tools grows, according to a new study by investment research and consulting firm Investit.
The new study, ‘The Future of the Buy-Side Dealer’ is based on face-to-face interviews with 20 buy-side institutions, ranging is size from £15 billion to £1 trillion assets under management. The interviews were conducted in May this year.
“Firms need traders to be familiar with how a lot of the new trading technology works, so 50% of firms said that technology was a skill-set that they wanted to add to their existing teams,” Clare Vincent-Silk, a principal at Investit and author of the study, told theTRADEnews.com. “It is predominantly on the technology side that they are finding they are a bit short on skills.”
The study also found that buy-side firms are looking to boost their trading skills outside equities. Vincent-Silk said 39% of respondents had mentioned wanting to add the ability to trade more than one asset class, indicating a shift to more multi-asset-class trading, especially derivatives.
In keeping with the findings on technology skills, the study also highlighted a surge in the buy-side’s implementation of execution management systems (EMSs). It found that 40% of respondents to the 2008 study had installed EMSs, compared with only 14% in 2006, and only 20% were not considering moving to an EMS, compared with 54% in 2006.
There are several reasons for the buy-side’s growing acceptance of EMS, according to Vincent-Silk. One is that they are seeking more sophisticated execution techniques to improve dealing efficiency. Some firms, especially hedge funds, are also seeing EMSs as alternatives to order management systems (OMSs), “They might want some more sophisticated connectivity now, so rather than getting an OMS they can put in place an EMS if the order management piece is not the main focus area,” she said.
Some firms may also have older OMSs that do not have modern features such as FIX connectivity and are costly to upgrade. “To give themselves that greater connectivity to the marketplace, an EMS may be a cheaper, more effective solution than enhancing their existing order management capability, especially if they are going to try and embed algorithms and direct market access from brokers,” said Vincent-Silk.
Institutions with global operations may find EMSs a useful way of integrating their disparate OMS systems around the world. They can also be a way of keeping tabs on brokers. “Even if you aren’t going to be actively using some of the more alternative trading methods, an EMS gives you a way of monitoring broker activity, and so you can ask more intelligent questions about their execution capabilities,” said Vincent-Silk.