Buy Side to Brokers: ‘Show Me Some Love’
The best way for a broker to prove their value to a buy-side trader is to simply pick up the phone and reach out.
In other words, show the buy-side some love. Now.
At an interactive panel session at the Security Traders Association of Florida’s annual conference this past weekend, a bevy of buy-side traders told their sales trader counterparts, both on the panel and in the audience, that they want meaningful, productive relationships with their brokers. And in order to have such a relationship, the brokers should call and add their own personal touch when dialing a trader. Otherwise, move over and let the next broker down the bench get a try as the institutional trader is often limited in resources, time and patience.
“We trade with people we know and love,” said Cheryl Cargie, head of trading at Chicago-based Ariel Investments, “Just pick up the phone. It’s really easy to do. Call us. Show me some love.”
And for those who call Cargie, they’re sure to be rewarded. She trades 90% of her order flow in high-touch fashion with IOIs – which matches her small- and micro-cap stock mandate. Even when she chooses an algo, the 30-year trading veteran wants assistance. “The younger guys use the algos on their own but I expect my brokers to help me,” Cargie said.
Dallas Lundy, Director of Trading at Atlanta Capital Management echoed Cargie’s sentiment. He explained that now, in the beginning of the year, is the best time for brokers to reach out as his commission spend is flush with cash and being allocated among the handful of brokers he’ll trade with. If a broker wants on that exclusive list, the clock is ticking.
“Our commission wallet is half of what it was ten years ago, while our AUM has grown,” Lundy began, “So we’re handing off orders to a small select group of firms. If we do give out an order its to a firm we know and love. We believe sell side is an extension of us and I have a great family relationship with the brokers I use.”
Sitting on the desk, Lundy added that as the trading business has evolved he simply can’t get out of the office as much and visit the sell side. And he misses that interaction.
Both Ariel’s Cargie and Atlanta Capital Management’s Lundy both agreed the sell-side broker is important to their workflow. “We need to have our broker or venue protect us at times,” Lundy said.
And even in times when protection isn’t warranted or an order being worked, Lisa Utasi, Director and Senior Equity Trader at ClearBridge Investments, said brokers could call her and she’d welcome the reach out – but with certain conditions.
“I appreciate the call – when its warranted. If you’re making a call, they need to be topical, quick,” Utasi said. There is noise out there that we need to eliminate. We need calls to be actionable and our broker partnerships to be better and impactful.”
In other words, don’t waste Utasi’s time. Or that of Pimco’s Eden Simmer for that matter.
“We have to tell brokers to stop calling us,” Simmer said, which alarmed some brokers in the audience. “There are just too few of us on the desk. And while I understand relationships in the business are so important we still need to transact electronically. If we take our eyes off our stuff, we’ll just drop the ball.”
To that end, Pimco encourages Eden to use algos as much as possible and is investigating creating its own algorithms using artificial intelligence to help her and the other traders execute orders faster and cheaper.
“Responding to IOIs can be a drag and it often gets me frustrated. I just assume put an order in an algo,” she said. “There have been times when I’ve called a bulge firm when they have a trade going on and they have no idea its going on another part of its desk. That’s an opportunity for the agency brokers to snag some order flow.”
James Duncan, director of sales and trading for cross-border execution at ITG Canada, responded to the buy-side traders by reiterating his desk’s goal is to be an extension of the institutional trader. To that end, he told the audience that when his high-touch desk gets an order ITG wants not just the parent orders but the child ones too. And then the firm will examine the execution quality of the child orders to see how it can improve its execution and add value.
“The lack of contact, not picking up the phone, is a detriment to our business,” Duncan said. “I say to my sell-side counterparts, talk to the clients. Don’t take the easy way out and hit ‘send a general message.’ Also, we need the buy side to be crystal clear on what they need or want from us. As long as we can be clear on instructions from clients this helps us with our coverage. There’s a need for good, ol’-fashioned communication.”
And it’s that good ol’ fashioned schmoozing the buy side still wants, regardless of staffing or cost constraints.
“That interaction is very valuable and give brokers a chance to know us. I don’t want to be another trader on a call sheet,” Atlanta Capital Management’s Lundy said. “If that’s the case, I might as well use another algo. If you don’t call us, you’re not going to get our next order, and that’s if we gave you a first one.”
Do conflicts of interest in trade routing and execution impact market quality?
Emerging technology presents challenges and opportunities for the buy side.
Greenwich Assoc estimates the industry will spend $700 million in 2018.
Federated will pay £246m for a 60% interest.
The success of the European asset management business is threatened.