Best Execution special report

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The Next of Best
What will best execution mean to you by this time next year? This month marks my one-year anniversary with Waters and in that relatively short amount of time the world of best ex has evolved-thanks to changes in regulation and market structure. While I came over from the retail, non-tech, banking side of the financial services industry, even I can recognize change when I see it.
To varying degrees, best execution has been the target of regulators-and savvy traders alike-on both sides of the Atlantic. In addition, Asian nations are grappling with the practice, most recently with India's regulatory body, the Securities and Exchange Board of India (SEBI), finally introducing smart order-routing to the marketplace, though the markets there are less fragmented.
Yet, inside this Special Report you will see that it is not just regulation that is driving best execution technology upgrades. As Sybase's Jeff Wootton points out in his Open Platform on page 4, this sea change is thanks more to market complexity and the emergence of ever-increasing numbers of venues for trading. Hardly a day goes by that I don't receive an announcement about this or that firm adding connectivity to some new exchange.
As a result, smart-order routing (SOR) technology has taken on greater importance at firms looking to gain an advantage over their competitors. In a matter of a year or two, smart order-routers have rapidly morphed from simple liquidity finders to become tools that can predict the probability of advantageous executions based on existing parameters and previous execution data, and adapt to changing market conditions.
I recently spoke with Thomas Chippas of Deutsche Bank; Ruth Colagiuri, then at Bank of America Merrill Lynch (BAML); and Jamil Nazarali at Knight Capital, each of whom is a major sell-side figurehead in the world of smart order-routing. They agree that putting a "Generation 2" or "Gen 2.1" tag on SORs is not appropriate, simply because this field of technology is improving so quickly (see Intelligent is the New Smart, Waters, April 2010).
It also must be noted that smart order-routing technology is just a piece of the best execution pie, as complex-event processing (CEP) has become a major buzzword throughout the industry. And finally, as Wootton points out in his Open Platform, as technology around best execution advances, so, too, will data requirements, which will create another headache-opportunity for advantageous trading shops.
As new geographies invest in routing technology; as rules geared toward best execution change; as new, sophisticated trading strategies take hold, firms on both the buy side and sell side will have to evolve with this market. So my asking, "What will best execution mean to you by this time next year?" isn't simply rhetorical. If you can't answer this question, then odds are that the market has already passed you by.
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