Economic pressure and increasing complexity in markets has led to demand from investment managers for outsourced trading services to increase significantly, a report by Coalition Greenwich has found.
Increased demand in light of the macroeconomic climate has seen the number of providers in this space increase by more than fourfold in the last five years, growing from fewer than 10 to more than 40 from 2018 to 2022.
According to Coalition Greenwich, investment managers are now more likely than ever to outsource some or all of their trading operations due to compressed profit margins, surging trading volumes and heightened volatility.
“We are witnessing the institutionalisation of outsourced trading. As large investment management firms in the US supplement their internal trading capabilities with third parties, and smaller firms outsource large parts or even all of the trading function, a robust field of providers is taking shape to meet these diverse needs,” said Shane Swanson, research director at Coalition Greenwich Market Structure & Technology and author of the report.
“Whether it is as a full-blown outsourced trading service or a supplemental trading offering, investment managers must scrutinise the scale, scope and expertise of the provider to ensure it can provide a reliable alternative for achieving best execution obligations.”
Several firms have made investments into outsourced trading offerings in recent months to capitalise on the growing demand. Most recent was Northern Trust, which announced a collaboration with Commcise in June that will see it bolster its outsourced trading capabilities by streamlining the commission management process for its Integrated Trading Solutions (ITS) clients.