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Regulation drives growth in outsourced trading in Europe

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As investment managers face a shifting regulatory environment, they are looking for greater support for their in-house trading desks. Outsourced trading providers are experiencing growth as managers of all sizes are looking to take advantage of this service. Jack Seibald, Managing Director, Co-Head of TD Cowen Prime Execution Services talks through the most recent developments.

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As investment managers face a shifting regulatory environment, they are looking for greater support for their in-house trading desks. Outsourced trading providers are experiencing growth as managers of all sizes are looking to take advantage of this service. Jack Seibald, Managing Director, Co-Head of TD Cowen Prime Execution Services talks through the most recent developments.

Can you outline the industry trends which have been driving growth and development within your firm over the past year?

The increased focus on operational efficiencies at investment management has resulted in growing demand for outsourced trading, a proven, quick and cost-effective way to source expertise, experience, global reach, deep liquidity and cutting-edge technology.   

TD Cowen is at the forefront of this market and has benefited from this industry growth. We continue to gain new clients at a rapid pace, despite larger organisations entering the outsourced trading market over the last couple of years. Our success can largely be attributed to ongoing investment in our experienced team of buy-side traders, our extensive trading and reporting technology stack, multi-asset capabilities, high service levels and flexible approach aimed at meeting each client’s specific needs and preferences. 

Outsourced trading was previously primarily used by emerging and mid-sized firms, but, over the past year, we have seen new demand from larger, more established firms. TD Cowen is reaping the benefits of this wider adoption.
 
Have you observed regional differences in client demand for outsourced trading? What is driving these? 

Outsourced trading has been used by buy-side firms in the US for many years, but in the past few years, we have seen a growing level of interest from firms in the UK, EU and Asia, either for complete or supplemental services.

Firms in different regions have different pain points. We offer a global solution, with multi-faceted services, helping to address the issues firms are facing wherever they are based. In Europe, for example, escalating trading costs due to regulations such as MiFID II have been a catalyst for some fund managers to turn to outsourced trading. 

Outsourced trading is often sought as a route for reducing other regulatory costs, too. Firms seeking to trade in a new region, for example, can save themselves the cost of licenses and the burden of reporting requirements by partnering with a reputable outsourced trading provider.

What are the primary challenges your firm and your clients are facing in outsourced trading and what is critical to these being overcome? 

Education remains necessary to dispel some of the myths about outsourced trading. Some buy-side traders still consider outsourced trading as a threat or an ‘all or nothing’ solution, which is simply not the case. The relationship between a client and outsourced trading provider should be a mutually beneficial partnership. Fund managers, for example, can scale more efficiently than hiring and managing new headcount and infrastructure, and can access expertise – wherever and whenever required – in existing or supplementary global markets and asset classes. They can use outsourced trading as a complete solution, to plug specific gaps or simply to help with temporary, seasonal or permanent staffing shortages.

At TD Cowen, we often refer to our outsourced trading service as co-sourcing or a hybrid solution. In essence, we become an extension of our clients’ trading desks, integrating with their systems, embracing their culture, adding value to their existing offering, and helping them to achieve their goals. 

What is your outlook for the hedge fund space for the coming year and how is your firm best placed to support clients navigate the environment? 

Following many challenging years during which hedge funds struggled to perform in a mostly straight up market, they have again begun to assert themselves as rapidly changing economic conditions and market volatility rewarded specific security selection. We see this continuing this year as investors continue to adjust strategies in a world with inflation and higher interest rates. What we don’t see changing is fund managers’ focus on operational efficiency and cost containment. Fixed infrastructures are not only costly to maintain, but also require management attention. By engaging TD Cowen’s outsourced trading services, hedge fund managers can benefit from cost efficiencies while adding a level of expertise not easily replicated internally with limited resources. 


Jack Seibald, managing director, co-head, TD Cowen Prime Execution Services – Jack Seibald has been involved in financial markets for 40 years and has a wealth of experience in the investment business including prime brokerage, investment management, investment research and outsourced trading. He joined Cowen (now TD Cowen) in 2015 as Managing Director and Global Co-Head, Prime Brokerage & Outsourced Trading and has played a major role in driving global expansion of these divisions through the introduction of new services and asset classes, building a presence in Europe and Asia, and delivering an award-winning offering to clients.
 

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