Large institutions in US shift to algo trading

Study reveals shift towards algorithmic and smart order routing trading, amongst larger institutions in the US.

Large financial institutions in the US have increased their use of algorithmic trading by 10% over the past year, according to a report by Greenwich Associates.

A poll of 223 equity portfolio managers and 321 equity traders – all based in the US – found that the volume of equity trading in the US directed to electronic channels, has remained flat since 2009.

Despite this, it found institutions with larger commission-generating accounts have in fact increased their scope of electronic trading through the use of algos.

The larger institutions were found to have increased their use of algorithmic and smart order routing (SOR) trading by 10% this year.

“Recent bouts of volatility and the approval of IEX’s exchange application are likely to force a refocus on the use of algo-driven routing logic, to help navigate an increasingly complex market structure,” the report said.

The survey also revealed a 30% decrease since 2009 in cash equity commissions paid by institutional investors to brokers.

It explained the decrease “seems like a dismal figure”, but with $9.65 billion paid in commissions, the result is up 4% from 2013.

The report said: “In 2016, trades sent to high-touch sales traders continue to generate the bulk of the commission pool,” despite the reported rise in e-trading.