Buy-side investors need sell-side broker-dealers to find the other side of their trades, and execute the trades in an efficient manner.
The best liquidity is the deepest liquidity, so in that regard the largest ‘wirehouses’ are best suited to meet institutional needs. One of the largest name brands in the space is Bank of America Merrill Lynch.
“We offer clients access to unique liquidity through one of the world’s largest and most diverse institutional and private-client networks,” said Tracy Caliendo, head of Americas hedge fund services and electronic trading sales at BoAML. “Based on their trading strategies, clients can access our liquidity directly or through our electronic strategies which are designed to read real-time market signals and help find liquidity more efficiently.”
BoAML’s global trading and consulting platform, Trader Instinct, is designed to help traders and investors navigate increasingly fragmented securities markets. Caliendo cited technology and content as two areas in which the firm is raising the bar.
“We are making a very big investment in our Instinct technology platform,” she said. “It has involved a lot of resources, but we wanted to develop a first-in-class platform. So about five years ago, we migrated our data centers to ensure greater speed and resiliency. Then we rebuilt our smart router and our ATS Instinct X. Last year and this year, we’ve been in the process of rewriting our algorithms.”
With regard to content, “there is a lot of talk about transparency and what happens to your order when you hit the button or place an order with a sales trader,” Caliendo said. “We’ve provided a lot of content around making sure our clients understand our routing practices. We have two teams of essentially research and execution consultants, who work with clients to help improve their trade execution.”
One trading tip came in the fourth quarter of 2014 and pertained to limit placement. “We noticed clients using five-cent limit placement increments, but if they used six cent increments they got a better fill rate because there was less of a queue,” Caliendo explained.
“Our group Instinct Knowledge puts out a monthly piece called Know Your Flows, which describes aggregate flow across the firm,” she continued. “Are hedge funds moving into Europe? Are hedge funds moving out of Asia? Are institutions and hedge funds moving more into more passive trading like ETFs? We provide a snapshot of the trends we’re seeing.”