Brokers are battling shrinking commissions, staffing shortages and other growing pains as they rush to keep pace with the rapid expansion of e-trading in U.S. equities.

As the volume of electronic equities trading grows, a significant proportion of U.S. “low-touch” trading desks are planning to expand their teams over the next 12-18 months. About a third of the U.S. sell-side electronic equities professionals taking part in a recent study by Coalition Greenwich are looking to beef up their algo sales and desk coverage, while a quarter are seeking to boost their execution and analytics consulting, on-desk trading assistant, and trade operations or algo support roles. Other brokers said they would consider hiring if they could find the right candidate and half the study participants named short staffing as a major issue for their desks.

“In addition to staffing issues, low-touch traders are still grappling with zero commissions, tightening regulatory requirements, and other challenges,” says Jesse Forster, Senior Analyst at Coalition Greenwich Market Structure & Technology and author of U.S. Equity Electronic Trading: The Broker View 2024.

Many sell-side desks are looking to expand desk capacity by outsourcing trading-related functions. More than three-quarters of respondents route at least some of their electronic client flow through third-party platforms, with about half relying on them for at least 80% of their flow.

Brokers already rely heavily on external providers for critical technology needs. For example, algo customization is a key differentiator for many brokers, with nearly half citing it as their selling point. However, only 22% of brokers keep all their algo tech stacks in house. 

“Integration issues are a major pain point for electronic sales traders, who are seeking to connect with external trading technology providers and ensure seamless workflows,” says Jesse Forster. “For bank-based traders, the challenge is compounded by internal compliance demands.”Looking ahead, brokers see the potential for artificial intelligence to alleviate some of the pressure from understaffed desks. Desks could ultimately replace some traders with AI, but as one study participant noted, “We’re not there yet.”

U.S. Equity Electronic Trading: The Broker View 2024 examines the growing importance of algorithmic trading strategies for both buy-side firms looking to improve trading results and sell-side firms looking to differentiate their offerings from rivals. The report analyzes the coverage quality low-touch desks provide clients, the main challenges these desks face, trends in commission levels, and looks at how desks are employing technology to become more efficient and grow their businesses. 

Source: Coalition Greenwich