A new survey conducted by Aite Group found that the buy-side is pining not just for ever faster computers and faultless algos, but for a real human being who can help clients understand the market and use algorithmic tools effectively.
According to the report, 87 % of broker-dealers believe “execution consulting services” (ECS) have become more important to them as a differentiator than core liquidity management services and algorithmic trading.
The study defined “The Next Generation of Execution Consulting Services” as a new service level that buy-side firms are increasingly demanding from broker-dealers. The traditional interface between broker-dealers and buy-side clients has been a reactive customer support function. But with the rapid adoption of electronic trading and increased market uncertainty, modern “execution consultants” are part traders, part quants, part IT, and part relationship managers, the report notes. Execution consulting services teams must provide greater value and insights for buy-side clients, Aite suggests.
Sang Lee, managing partner at Aite Group notes that the main challenge for tier 1 and tier 2 brokers is that the decentralized trading infrastructure creates complexity and latency for firms seeking to identify and address issues during the lifecycle of a trade.
“Many brokers have dozens of systems connected to various liquidity venues, data sources and databases. The key to building a scalable and sustainable execution consulting service is to effectively integrate these systems and deliver customized and relevant information to sales traders, quants, risk managers and analysts in real-time,” he stated in a release.
The report found that the majority of respondents report that their current service levels are unacceptable. Many have a 3-5 day turnaround time to buy-side inquiries, while the majority of respondents expect near real-time supports and responses.
Meanwhile, Aite noted that 79% of respondents believe that active alerting is the most important service of ECS functionality. More than half the respondents identified the other key elements of ECS as pre-trade and post-trade analysis, a single view of client data, and real-time trade analysis.
“The fact that ECS has now eclipsed the importance of broker-supplied algorithms is remarkable,” said Mark Palmer, CEO at StreamBase. “With automated trading levels at an all-time high, brokers-dealers now must differentiate themselves based on the ability of real-time insight they can provide buy-side clients. This is a new way of thinking for many firms, and ECS groups will demand a new kind of real-time analytics platform as a result.”
Aite Group’s study was conducted during March and April 2012 and involved a qualitative analysis of 15 leading broker-dealers.