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Alpha capture to gain momentum, says TABB Group

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As alpha capture has become an accepted and essential practice at top tier European banks, it is also evolving in how it operates within the larger compliance and surveillance framework.

Taking note of the specific benefits to firms engaged in alpha capture programs, TABB Group’s latest research, “The Evolving Role of Alpha Capture: Technology Matures and Opportunities Expand,” dissects the trends within the alpha capture space and where it is expected to grow moving forward.
In terms of explicit revenue, TABB estimates that alpha capture represents approximately 4.8 per cent of the commission pie globally. Report author Valerie Bogard (pictured) explains that over the next five years, TABB expects commission share to grow due to the expanding opportunities for alpha capture in new regions, as well as with new clients.
Though today the majority of alpha capture happens in Europe, many sell-side firms are planning for growth in emerging markets, such as Asia. There is also significant room for growth by fundamental firms in addition to the alpha capture clients at systematic funds currently making up the majority.
“During a transformational time for the financial services industry where research and trade commissions are decreasing and funds are becoming more selective about their partnerships, alpha capture is becoming a key link in the firm’s ability to drive growth and profits,” says Bogard. “A big motivating factor for many in charge of alpha capture is not only the result of direct payments, but other business driven to the firm, such as prime brokerage, as a result of the relationship.”
Bogard details in the research that regulations around the globe are heavily impacting the need for hard, quantitative measurements and greater transparency, a shift that particularly benefits firms already engaged in alpha capture programmes and their supporting systems. In fact, two important European regulations, Market Abuse Regulations (MAR) and Markets in Financial Instruments Directive (MiFID II), will cement the necessity of the alpha capture infrastructure and could even push more brokers to use the systems behind alpha capture even if they do not offer it as a core service.
“The electronic nature of alpha capture and the inherent audit capabilities help ensure that all ideas are compliant interactions with the buy side. It is clear that the alpha capture service, systems and structure have far reaching benefits to many aspects of the securities and investment sector,” adds Bogard.

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