Buy Side Warms Up to Electronic Market Makers

Terry Flanagan

T. Rowe Price and other institutional buy-side firms are warming up to the idea of sending order flow directly to electronic market makers, rather than just the traditional ‘Bulge Bracket’ banks.

Money managers and internally managed pension funds are expected follow the lead of T. Rowe Price Group Inc. in sending direct equity order flow to high-frequency trading firms, which could chip away at the established use of brokers to direct institutional trades, Pensions & Investments reported, citing unnamed sources.

T. Rowe Price in 2015 began directing equity trades to Virtu Financial Inc.

“The T. Rowe-Virtu deal is kind of like the canary in a coal mine, and the canary is doing pretty well,” William R. Harts, CEO of Modern Markets Initiative, a New York electronic and high-frequency trading industry group, told P&I.

Added Valerie Bogard, equity analyst at TABB Group LLC, New York: “The buy side has gotten more comfortable with high-frequency trading firms, and they weren’t before. A lot of their strategies used to make the buy side uncomfortable. But now the buy side understands much better how those firms work and they’re ramping up their transaction cost analysis, and HFT firms are providing the liquidity they need.”

Ms. Bogard told P&I that other large managers have started using high-frequency trading firms since T. Rowe Price announced its move in April 2015 but didn’t publicize it.

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