Seventy-three percent of buy-side traders responding to a survey about high-touch trading said that liquidity was the No. 1 value -added service offered by sales traders, according to Woodbine Associates in a new report released this week.
Sixty-three percent of the buy side traders picked market insight and color as an important service, while 44 percent chose stock insight and 39 percent singled out trading expertise. Research was cited by 27 percent and relationship management was noted by 17 percent. Only 12 percent picked sector insight and capital commitment as value added services from the sales trader.
But the report also raised questions about the extent to which the buy –side equity trader values services and analytics provided by the high-touch sales trader. Worries about losing anonymity and receiving executions that were done to first satisfy a counterparty were expressed.
The 37-page report, “Sales-Traders Asset Manager Expectations from High Touch Coverage,” is based on an online survey of 41 head or senior traders at U.S. asset management firms, according to Woodbine, a capital markets consulting and research firm in Stamford, Conn.
The study looked at a number of areas, including the skills and characteristics of what makes a successful sales-trader as well as performance of the sales trader and how well high-touch coverage is meeting the buy side’s expectations.
Despite all of the low-touch algorithmic trading going on in the market, the sales trader handles most difficult orders that buy-side traders won’t put into an algorithm, said Matthew Samelson, principal at Woodbine Associates. Sales trader skills are valued “in terms of getting a transaction done without disrupting the market or giving too much information away or exposing their anonymity,” he said.
However, when it comes to performance and whether the buy side is satisfied, Woodbine uncovered some major discrepancies between the buy-and-sell side perspectives.
“There seems to be a disconnection between what the buy side finds of value and what the sell side if offering,” said Samelson in an interview with Advanced Trading. “The buy side is very well covered and well understood, and some aren’t,” notes Samelson.
In an era of anemic trading volumes, sell side firms cannot afford to devote resources to products that are undervalued, said Samelson. Sell side firms really need to plan strategically to better understand their clients and to run their businesses with proper allocation of resources, he advised. Unlike the past 30 years where volumes were increasing, “now firms are in a situation where volumes are weak and to seize market share and grow the business depends on how you plan, how you allocate resources,” he said.
Despite the reduction in headcount that’s occurred on brokerage trading desks, there still seems to be a lot of mediocre high-touch desk coverage out there, said Samelson. One possibility is that firms got rid of all the experienced people and kept smart but green people with less experience, or the people who are politically in favor but not up to the challenge were kept, he said. “The real thrust of this is that leadership on the sell side can’t afford to get this wrong anymore. It’s the difference between curtailing their business or agency firms out of business,” he said.
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio