Credit Suisse First Boston (CSFB) and Morgan Stanley say they will give buy-side clients access to their algorithmic-trading strategies through the CharlesRiver Investment Management System (IMS).
Both sell side firms struck separate agreements with Charles River to embed access to their algorithmic trading-strategies through order management system (OMS) to make trading more efficient for their buy-side clients. In both cases, the orders are sent to algorithmic strategies via the Financial Information Exchange (FIX) protocol.
Algorithms are quantitatively developed, automated trading-strategies that broker dealers are offering to their buy-side clients to help them track a benchmark (such as volume weighted average price or VWAP) and minimize market impact.
In the case of CSFB, it provides a suite of automated, algorithmic trading strategies, known as Advanced Execution Services (AES) currently used by 250 clients. AES is a global platform that executes in 23 countries. Over the last two years, CSFB has formed a series of strategic partnerships with to gain global distribution, says Manny Santayana, director, AES for the Americas, at CSFB. "We don't have a front end. We're not in the software business. We're in the execution business," says Santayana.
He says the CSFB has struck similar deals with Bloomberg, MacGregor, Lava Trading, Portware and FlexTrade, which are "in the software game" and CSFB will continue to form partnerships on a qualified basis, he adds.
Previously, CSFB provided a single drop-down box, which was a defined single strategy. With the strategic partnerships and the ability to customize the FIX message fields, CSFB says it's able to provide more functionality to the buy-side client. For instance, it provides a customized order-ticket window from which the buy side can control different variables of each order, such as the start time, the end time, whether the trade is patient, normal or aggressive and they can define what is the maximum or minimum percent volume. Now, "you're able to control the macro-variables of the order as you are intelligently working the order," he explains.
According to one analyst, algorithmic trading is on the upswing and the industry is going to see more of this OMS integration.
"What you are giving to the buy side is more choice. It is both choice in terms of trading strategies and how you deliver it," says Miranda Mizen, senior analyst in the securities and capital markets practice at TowerGroup.
"A broker doesn't dictate how a client is going to use his services. If a client wants to go to the broker's portal and access its research, that's okay, says Mizen. However, if Charles River is the buy-side client's primary workspace then the sell side must integrate into that, she says. "What the sell-side are providing in terms of access and delivery channels it's not one size fits all," she adds.
Morgan Stanley also agrees that clients need seamless access to its algorithmic-trading strategies. In the past, Charles River would have taken the order and sent it via FIX to Passport, which is Morgan Stanley's portal product, or one of its other vendor partners, such as Bloomberg, that have access to its algorithmic-trading strategies, and then trade the order, says Brian Fagen, managing director in the institutional equity-division at Morgan Stanley. But now, the firm's buy-side clients will have access to Morgan Stanley's Benchmark Execution Strategies (BXS) through their OMS via FIX without leaving the application.
"It allows people to execute with one less step," adds Fagen, who says it's about efficiency for the buy-side trading desk. Instead of having to take the order from the OMS and put it into (another system), they can trade directly from the OMS, he says.
BXS is a collection of algorithms that help a buy-side trader formulate dynamic "trade plans" relative to a selected benchmark, for example, arrival price, VWAP and close. Each benchmark strategy attempts to minimize the shortfall vs. that chosen benchmark by optimizing the tradeoff between market impact and market risk.
Because the algorithmic strategies are automated, there is no information leakage. If the client wants to do a trade without assistance from a broker/dealer, they can do so with anonymity, say Fagen. "They're not talking to a person. They are sending orders electronically into any one of a number of algorithmic trading strategies we offer," he says.
According to Fagen, Morgan Stanley is pursuing a number of these arrangements with vendor partners. Clients as well as vendors have requested this, he says. "We see it as a very viable source of distribution." Currently, Morgan Stanley has a similar agreement with Macgregor as it does with Bloomberg. 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