And in this corner, trading in microseconds, is the E. TRADING. PLATFORM.

After years of grabbing market share and the buy-side traders’ orders, electronic or low touch trading platforms easily took trades away from their human telephony counterparts. But this trend, where people began to think it was the death knell for the sales trader, looks unfounded. The buy-side still values the human high-touch trading experience and has voted with its order flow – and now the low-touch platforms, after years of unbridled growth, are now faced with stagnant market share. They too now must fight for business. 

According to market consultancy Greenwich Associates, electronic equity trading platforms in the U.S. can no longer rely on the steady shift of business from traditional trades to digital execution for growth. Amid a maturing market for electronic trades and what appears to be a secular slowdown in investor trading activity, e-trading platforms will have to fight to capture market share from rivals and rely on innovation as a source of future growth.

In its latest report, “The Electronic Trading Landscape in 2018,” Greenwich found that the share of total U.S. institutional equity trading volume executed via algorithmic trades and crossing networks have leveled off at about 35% and 9%, respectively.

“These are the levels that, in aggregate, the buy side feels are the appropriate mix to optimally manage their order flow,” said Richard Johnson, Vice President of Market Structure and Technology at Greenwich Associates and author of the report. “Barring some meaningful event like a ‘MiFID-U.S.,’ this blend is unlikely to change much going forward.”

In addition to the end of the steady advance in electronic execution, brokers and platforms are contending with a prolonged slowdown in investor activity that has depressed market-wide trading volume and sell-side equity trading revenues. Overall U.S. equity share volume fell by 11% in 2017 and notional value traded fell slightly. Execution commissions also fell by 11% and volatility, as measured by the VIX, fell from 15.8 to 11.1.

“In this constrained business environment, the buy side has less flexibility in managing their trade flow and vendors and brokers will need to work that much harder to grow their business,” Johnson said.

Keys to Growth: Liquidity and Innovation

When it comes to winning electronic trading business in U.S. equities, the most successful brokers are those who help institutional investors source liquidity.  Liquidity-sourcing algorithms are the most popular choice among U.S. buy-side traders, representing 39% of all algo flow—more than the next three most popular algos combined.

In the future, innovations such as on-demand auctions that help investors access liquidity in small- and mid-cap stocks have the potential to gain meaningful market share. Auctions are a proven system and have been used for centuries to enable quantity and price discovery. “By combining the latest technology with a tried and tested process, these on-demand auctions could represent an important new tool in investors’ hunt for liquidity,” Johnson concluded.