One third of US buy-side firms looking at outsourced trading, study finds

Study by Greenwich Associates found that one third of institutional investors see outsourced trading desks as a solution for managing trading flow and  best execution.

One third of institutional investors in the US and Canada are considering outsourced trading as a solution for various business challenges, according to a survey by Greenwich Associates

The poll of 84 buy-side equity traders found that 30% of viewed outsourced trading as a way to help with processes like managing trading flow and achieving best execution.

The study found that competitive pressures and increasingly complex markets meant that investors were keen to offload “non-core” activities to outsourced trading desks while focusing internal resources on core issues.

“As more buy-side firms realise that they don’t have the resources to cover every aspect of execution, clearing, settlement, and regulation more of these firms will consider whether it makes sense to outsource their trading desks and reallocate resources to their areas of expertise,” said Shane Swanson, author of the study and senior analyst for Greenwich Associates market structure & technology.

Just one in 10 institutional investors surveyed said they were currently outsourcing, while 10% of study respondents had still not heard of outsourced trading.

The study highlighted opportunities for outsourced trading desks in fixed income, with the electronification of the corporate bond market and the regulatory focus of the US treasury trading market over the last ten years. The developments have created further complexities for bond traders that could encourage outsourced trading in this area.

“For firms without the resources to either take advantage of the opportunities or to navigate the complexities, outsourced trading for fixed income could also prove an attractive solution,” added Swanson.

Several asset managers have confirmed plans to engage with outsourced trading over the past year. Just last month, US-based Westwood Holdings Group selected Northern Trust to provide outsourced trading through its integrated trading solutions service.

The $12 billion asset manager said Northern Trust would be responsible for its equity and fixed income trading, as well as its middle-office trade settlement support under the agreement.