US Institutional Equity Trading 2016: Part 2 of 3 Blocks & Trading Tackle

The ability to source liquidity across multiple markets, and to combine and prioritize different pieces of information – including trades, advertisements, indications, market views, and analytics – into an integrated view with an easy workflow, is more important than ever to the buy side’s ability to trade blocks. Block trading has increased to 19% of trading volume for asset managers compared with 17% last year, but trading in size at an acceptable price is arguably no easier than it has ever been. Variety abounds: crossing networks, risk desks, and banks and non-banks offer different business models; actionable indications of interest (AIOI) that continue to light up their screens; and broker algorithms access chunks of liquidity. Demand for capital is sporadic, as the majority favor crossing networks and cash desks for blocks.

New models, connections, products, and systems are constantly being rolled out, expanding the spectrum of block trading possibilities, and increasing also the concern of jeopardizing unfinished flow, being second guessed, or missing a trade. Forty-eight percent of our respondents use trade advertisements to determine which brokers to use, but 41% shy away from advertising their eligible electronic flow intra-day, considering anonymity sacrosanct. Actionable IOIs have gained some traction but the outlook is mixed; while the jury is still out on conditional orders, with 61% in favor of industry standards around this order type.

The ever-increasing choice of execution strategies mean the buy-side trader’s tools must keep pace with changes in the market.  Every year the order management and execution systems (OMS and EMS) play an increasingly important role as crossing networks and broker products are more tightly integrated. More than half of respondents are little impressed with their most recent OMS/EMS upgrade, putting vendors under constant pressure to deliver more features and functions, integrate more tightly, add more data, handle more asset types and reach more markets. Seventy-one percent are satisfied with the integration of broker products in their EMS, but the three main selling points behind our participants’ adoption of their EMS – ease of use, range of features, and workflow integration – also top the wish list of improvements by vendors.  Buy-side traders need top-line technology to deal with and take advantage of the vast array of information in the marketplace. Only then will they be comfortable that the trade will stand up to a TCA report that has the critical hindsight of a Monday morning quarterback. 

US Institutional Equity Trading 2016

For TABB Group’s 12th annual Institutional Equity Trading (IET) report, we interviewed heads of trading at 100 buy-side firms in the first quarter of 2016. The results will be published in three parts. In Part 1, we reviewed buy-side trends and drivers of top initiatives, commission wallet/rates, execution channels, broker lists, research firms, CSAs and the response to unbundling regulations overseas. 

In Part 2, we identify trends related to block trading, capital usage and IOI consumption, conditional orders, and trade advertisement. We also delve into the role of EMS/OMS for buy-side traders including broker product integration, valued functionalities, and perspective on vendor fees and improvements.

In Part 3, we tie together top brokers in terms of commission and in specific categories in the new era of full disclosure. We will discuss execution quality assessment and routing control trends, highlighting what the buy side conveyed as areas for market structure improvements including new trading venues and takeaways from the extreme volatility of Aug. 24, 2015.