The broker community is changing the way it operates with buy-side clients by taking a more consulting role in helping firms source liquidity in line with market structure and industry changes, Kevin Russell, global head of cash equity trading for Citi, has said.
Regulation reducing proprietary trading for sell-side firms, alongside issues such as growing concerns from asset managers about information leakage, order routing and high-frequency trading (HFT) has led brokers to engage clients with broader strategy decisions, not simply offer products and services, he said.
“Sell-side firms including the bulge bracket continue to focus on their role of helping buy-side clients find liquidity through new products and a greater focus on analytics,” Russell said. “In this sense, sell-side firms are increasingly acting as liquidity consultants, not just brokers providing access to markets.”
Asset managers have in recent years vastly increased demands on the sell-side for information showing, for instance, where brokers execute orders on their behalf and whether rebates are involved. He said Citi would continue to focus on offering asset managers products by which firms can analyse data in near real-time to improve execution quality.
“Buy-side demand for more granular execution data showing exactly how their orders play out in the market will continue to grow,” he said.
Russell added that buy-side firms, particularly larger asset managers, were now capable of conducting functions traditionally associated with the sell-side, but this had not diminished the relationship between the two.
Instead, asset managers will continue to rely on brokers to source liquidity through combinations of high- and low-touch offerings, backed up by more advanced data analytics.