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waters-liquidity-report-may2012

Liquidity & Electronic Trading special report

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May 2012 - sponsored by: Bloomberg, IPC Systems, Knight Capital, SunGard

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Anything but ‘Set and Forget'

 

Life isn't simple. This is especially the case for buy-side traders and portfolio managers. Just when you think you've got all your ducks in a row from an operations and technology perspective-which might include a range of smart order routing (SOR) and executing tools, and possibly, if you're really on the ball, advanced transaction-cost analysis (TCA) functionality-the game changes. Electronic trading, from a buy-side standpoint, can be described as anything but an area of the business that you can afford to "set and forget."

Any buy-side manager worth its salt would, by now, have the operational infrastructure wrapped around its cash equities business, down to an art. But the days of the equities-only, buy-and-hold asset manager are pretty much numbered, thanks to anaemic returns associated with this asset class since before the market turmoil more than four years ago.

Managers have, therefore, been forced to broaden their investment horizons by moving into fixed income and exchange-traded derivatives-and for the more adventurous buy-side firms, over-the-counter (OTC) derivatives, too-traditionally the domain of the hedge fund and those buy-side players with specialist capabilities.

This shift in focus by large numbers of buy-side firms, coupled with operational and regulatory developments in the capital markets, which have witnessed the continued fragmentation of liquidity across all asset classes, in addition to the imminent introduction of swap execution facilities (SEFs) in the US and their European counterparts, organized trading facilities (OTFs), has again placed the onus on buy-side firms to extend their technology and connectivity, and, therefore, their reliance on their brokers.

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