Trading volumes executed electronically by equity investors increased last year, accelerating the evolution of the US stock trading business into an increasingly complex, technologically driven market structure.
New data from Coalition Greenwich found that electronic trading platforms captured 44% of buy-side US equities order flow in 2023, up from 42% in 2022.
Roughly 37% of total 2023 volumes were executed through algorithms and/or smart order routers – an increase from 35% – while 7% was directly routed to crossing networks, which remained consistent year-on-year.
According to Coalition Greenwich, managers expect the trend to continue to increase, projecting algorithmic trading to reach 40% and crossing networks to increase to 8% over the next three years.
Electronic trading has even larger usage among the highest commission-paying institutions, with 59% of their flow by notional value channelled through algorithms and 7% through crossing networks.
Although routing to electronic trading continues to rise, high-touch sales trading continues to gain traction, with these highest paying managers increasing high-touch trading by roughly 5% year-on-year.
Coalition Greenwich noted that this suggests a potential tipping or saturation point, showing that electronic trading could encounter resistance at around 60% of flow traded value.
With increasing electronic execution from the buy-side, these firms are also reducing the amount of brokers they use to trade US equities overall.
Buy-side desks have reduced their equity trading counterparty lists slightly to an average of 31 brokers, a reduction from 31.5 in 2022.
“Sourcing natural liquidity remains the buy-side’s primary determinant in allocating a diminishing commission wallet, and desks are reducing their broker lists while concentrating flow to their top providers,” says Jesse Forster, senior analyst at Coalition Greenwich Market Structure and Technology.
“There is one important exception: higher commission payers are expanding their lists to an average of 44.1, indicating a unique trend among top-tier institutions.”