Low-touch channels are anticipated to receive more than 40% of the commission wallet for the first time in 2014, up from 35% in 2013, according to TABB.
Rebecca Healey, a TABB senior analyst, says that over 60 per cent of the buy-side are now selecting algorithms according to strategy, not the underlying broker, a changing selection process impacting how brokers need to adjust their low-touch offerings in 2014.
“The ranks of the leading buy-side head traders who appreciate that they need to rely on greater technology, rigorous analysis and improved trading processes to survive are swelling,” says Healey.
In part two of TABB's 34-page annual buy-side equity trading study with 45 exclusive exhibits, the firm's seventh in Europe, they pinpoint:
· Changes in algorithm and dark pool usage by average daily volume
· Top algorithm providers in 2013 and those to watch in 2014
· Commissions paid and geography
· How firms are responding to the impact of increased regulation
· Changes in TCA providers and usage
· IT spend indicators for 2014
· New products to be traded electronically
· Changes in the OMS/EMS space
Interviews were conducted during the fourth quarter of 2013 with 58 head traders of equity management firms across Europe, the UK and US, comprised of 49 long-only asset management firms and nine hedge funds, managing EUR14.6trn in assets under management (AUM).
A sampling of part two’s top 10 findings include:
· 55 per cent of the buy side plan to increase algorithm usage in 2014.
· Although 57 per cent continue using the same number one provider as in 2012, nearly one-third plan to increase their number of algorithm providers in 2014.
· Execution consultancy remains the top opportunity for brokers to differentiate their low touch offerings.
· Country-specific regulation is proving to be a serious issue, forcing many to reduce trading in affected countries.
As automation in the execution space permeates across the asset classes and into additional products and services, Healey says that low touch will no longer reflect merely a dumbing down of execution but a wider quantitative adaptation of technology encompassing short-term alpha within the investment decision.
“While technological leaders will continue to remain at the forefront, it will be the shift to technology by the moderate majority that TABB believes will deliver greater radical change throughout the industry,” says Healey. “Low-touch domination is set to take off.”