Buy Side Makes Technology Push
Buy-side investment managers are ramping up technological innovation, according to Thomas Burrell, an executive search professional at Objective Paradigm.
“Improving execution is, obviously, a bigger concern now then it was a few years ago, and vendor products have filled that need to some degree,” Burrell told Markets Media. “However, I haven’t seen a broad-based technological revolution in the buy-side environment. They are moving to adopt ideas and technology that has been available for a long time now; they just have not had the need to innovate until relatively recently.”
There has been a buy-side push to hire more ‘quants’, as firms look for more effective strategies to improve execution, manage data, and find liquidity. But these are still environments that were not always known for going all out to procure quantitative talent or make huge technology investments to begin with. “I imagine that there has been quite a learning curve for managers inside these places,” Burrell said.
The individuals that are likely to bring the best quantitative skills and experience that would most benefit them are, for the most part, still in the sell side or prop trading.
“The clearest recent trend has been acquiring data; the leading firms have learned to move beyond the usual things like cost analysis and measuring slippage, etc.,” said Burrell. “They are just better at collecting data in general, and they seem to be paying more attention to the gains that can be made through automating other pieces.”
The buy side’s situation demands that it adopt new and better ways. “It is obvious that more order flow is handled electronically, and not as much by phone,” said Burrell. “They are getting better at routing and breaking up orders to improve execution, but it still makes sense for them to look at trying to move big blocks.”
He added, “I don’t think we have seen a large increase in block trades, but I am willing to bet that more buy-side traders are sending indications of interest, or are on the phone asking their brokers if they can handle more size, not just better prices.”
Automation and improving quantitative capabilities will continue to be the focus for buy-side firms. The more precise they become at measuring things like risk, or quality of execution is vitally important.
“Traders will have to become more dependent on electronic execution,” said Burrell. “Larger firms are more likely to be able to make technology investments that allow them more options in terms of meeting IT needs. The small to mid-sized firms will have to face the ‘buy vs. build’ question but with more complicating factors.”
Agency broker moves beyond execution to offer a broader suite of services.
Algorithms have become more prevalent in the spot FX market.
QB’s Algo Suite for futures market trade execution is also being co-located to HKEX.
Breaking data silos is key to deploying automation beyond 'nuisance' orders.
They can be used on quantum hardware expected to be available in 5 to 10 years.