Top US asset managers concentrate algo business

Leading US asset managers are using fewer algorithmic providers than their global counterparts, according to The TRADE's latest annual survey, with almost half using algos for over 40% of their orders.

Leading US asset managers are using fewer algorithmic providers than their global counterparts, according to The TRADE’s latest annual survey, with almost half using algos for over 40% of their orders.

According to the data from The TRADE’s 2013 Algorithmic Trading Survey, US-based investment managers with over US$50 billion in assets under management used just over four (4.2) algorithm providers, compared to almost six (5.9) in the global survey.

However, smaller buy-side firms with US$10-50 billion AuM used an average of nine providers, 30% higher than the six recorded globally.

The reduced number of providers being used by the largest US buy-side firms is a reflection of a market characterised by lower equity trading volumes and relatively poor performance from active asset managers last year compared to passive strategies.

US equity volumes have recovered only slowly since the global financial crisis in late 2008 caused a sharp decline in volumes.

Total value traded across US equity markets reached US$51.42 trillion in 2009, according to data from Thomson Reuters, and climbed to US$58.59 trillion in 2011. But US stock trading plummeted by over 20% last year, with US$48.27 trillion traded throughout 2012. With less equity trading to go around, buy-side firms typically have less commission, which generally means a streamlining of algorithm providers.

A study from Greenwich Associates last May revealed that the commissions paid by US equity investors, declined for the third year in a row, with payments to brokers dropping by 6% in the 12 months to Q1 2012 to US$10.86 billion, the lowest since 2007. Meanwhile, around 47% of US respondents used algos to execute 40% and over of their trading activity and 18% used algos for 10-20% of flow, in line with global trends. Over 56% of US firms questioned used algos for over 30% of their trades, a similar proportion to the global results.

In 2011, just under 40% of respondents to the global survey used algos for over 40% of flow, with 58% using algos for over 30% of their trades.

More flexibility when customising strategies was a common theme in the additional features sought after by US institutional investors. These included adjusting strategies ‘on the fly’ to incorporate parameters like minimum fill, ‘I would’ levels and scaling.

Some requested more transparency on routing decisions and research on fragmentation of liquidity, while others were looking for strategies that would target tricky situations, i.e. illiquid stocks and end of day trading.

US survey results were based on 352 evaluations of US algorithm providers. The full global results of The TRADE’s 2013 Algorithmic Trading Survey, based on over 1,100 evaluations, will be published in the Q1 2013 issue.

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