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Cross Asset Trading Heats Up

Alpha-seeking firms increasingly are looking to cross-asset trading and multi-asset platforms to improve performance.

Dan Battye and Michael DuCharme are focused on foreign exchange trading at Russell Investment Group. But foreign currency isn't the only asset class on their minds these days. As the trading world increasingly reaches overseas, where growth and margin opportunities are higher, Battye and DuCharme's activities are becoming more and more important to the firm as a whole.

In its efforts to create better results for clients, Russell is doing what so many other firms, big and small, are doing -- it's turning to cross-asset trading and bringing the trading of two or more asset classes together onto a single platform for more efficiency, better risk management, better position reporting and viewing, and ultimately better returns. And that's where Battye and DuCharme see beyond currency and into equities, bonds and other asset classes.

Of course, the more tech-savvy hedge fund side of the industry has been using one platform to trade multiple assets for some time; some hedge funds even have developed their own platforms internally as a means to maintaining competitive advantage. But the trend is spreading as larger, more traditional investment management firms are jumping on the multi-asset-trading bandwagon in search of alpha. Among smaller firms, the trend seems to be driven by overseas trading and the desire to bring equity and foreign exchange efforts together.

Regardless of size, buy-side firms are starting their cross-asset forays slowly. The focus might first be on asset classes that are interconnected and lend themselves well to combined trading views. For example, a firm might bring together equities and foreign exchange as a starting point and then branch out to derivatives.

"Firms are always searching for alpha and new opportunities to beat the competition," observes Andy Nybo, senior analyst at TABB Group. "They're looking at new asset classes -- from energy to commodities to foreign markets. And as they expand, they need systems that can manage the complexity of trading across regions and asset classes."

Nybo says that trading systems covering multiple asset classes enable traders to seek alpha more effectively. "It enables traders to use more-complicated, complex, interrelated strategies without having to go to multiple screens or go and pick up the phone," he explains. Nybo adds that buy-side firms entering multi-asset trading waters will need these types of systems to see the totality of their transactions more effectively.

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