Equity portfolio trading portal BidRoute has gone live to coincide with the introduction of the European Union's Markets in Financial Instruments Directive, which requires dealers to be able to demonstrate best execution for their clients.
According to BidRoute, some 43 per cent of all equities trades in Europe are portfolio trades, a volume-based auction process that delivers efficiency for dealers and brokers. With the introduction of MiFID, however, dealers must provide investors with an audit trail of the price discovery process for such transactions.
Dealers can satisfy the best execution price discovery requirements of MiFID by using BidRoute.com to run a private or open broker-facing auction of their portfolio trades, capturing the complete process in an easily accessed audit trial. Several UK buy-side and sell-side firms have already signed up to use the system.
'Best execution is an essential part of good investment management,' says Betsy Anderson, head of centralised dealing at Resolution Asset Management. 'We are always interested in tools that genuinely help us do better for our clients.
'BidRoute is an interesting new proposition that really looks as if it will benefit both us and our clients. We particularly like the audit trail aspects which will help us demonstrate a best execution process has been followed.'
BidRoute is a new solution to a historically manual process, according to its co-founders, chief executive Barry Marshall, chief technology officer Kevin Houstoun and chief operating officer Julian Lee.
As chief operating officer of Gartmore's investment division, Marshall signed the UK's first commission-sharing unbundling agreements in 2003. Houstoun is an architect of the FIX Protocol and co-chairman of the FIX technical committee, while Lee is an authority on front office IT for investment management firms.
'We're aiming to help a market that is undergoing greater investor and regulatory scrutiny,' Marshall says. 'BidRoute saves the dealer time, delivers transparency and demonstrates to investors that a rigorous process is in place. This tool will empower the investment management industry while simultaneously benefiting brokers, end-investors and regulators alike.'
He says BidRoute enables all portfolio trades to be easily automated and performance tracked and, if desired by the dealer, opened up to an international directory of brokers. It also offers marketplace anonymity, the ability to host a public auction with all prices visible to all players, and analysis of historical data on who has provided good prices in different markets at what times. Investment managers that want to use only their existing broker relationships can continue to do so within BidRoute and create a MiFID-friendly audit trail.
Lee argues that BidRoute adds electronic operational controls to the portfolio trading process. 'There is strong market demand for a tool that safeguards users against the operational risks posed by human error,' he says.
'This was a key consideration in the interface design. We have incorporated checking and vetting features which all users pass through prior to posting live bid information, which has proven to be a key selling point for both traders and brokers.'
BidRoute enables traders to put a portfolio of stocks out to multiple brokers around the world in the same time it would take to deal manually with a small number of brokers with whom they have established relationships. It will also provide access to specialised brokers not previously on their radar.
Brokers can manage their own profiles based, for example, on sectors of expertise and region. They can gain access to trades previously closed to them and obtain feedback on their performance in the bid process, which could help to make them more competitive.
'BidRoute is designed to be as simple and intuitive as possible,' Houstoun says. 'It is secure, easy to install, works seamlessly with FIX and other applications, and has a user-friendly interface. Dealers can be up and running within minutes using web-based technology and import their own data or create it within the system. We expect BidRoute to become an essential tool for investment managers and brokers alike.'