The world of buy-side and sell-side traders is under pressure with the buy side needing performance while the sell side needs to demonstrate value. As the market becomes more automated and pressures mount on both sides of the market, Larry Tabb, founder and research chair at TABB Group and author of a new market note, “Fragmentation vs. Liquidity: Can Technology Resolve the Debate?” says having an effective platform that provides access to market-wide liquidity and enables the client to monitor its execution quality, use the most effective tools and easily customize them, will become critical to remaining relevant in this increasingly competitive world of equities trading.
Today’s traders are focused on technology and connectivity, says Tabb, while buy-side traders increasingly are leveraging tools and techniques for developing and selecting algorithms. While these algos have helped traders lower their transaction costs, breaking up large trades into smaller pieces and executing them over time leaves the trader open to market impact of a poorly timed, executed, or selected algorithm, as well as the opportunity cost of not executing immediately and leaving the trade open to a potentially market-moving event.
This goes to the very heart of the age-old debate: Can an order limit both market impact and opportunity cost? In his research note, Tabb deep dives down on the new technologies and services helping limit impact and opportunity costs as they simultaneously help clients leverage algorithms, gather liquidity and keep orders in the market.
While some traders push for greater analysis and the tailoring of algorithms at the most elemental level, some have become overwhelmed by the massive complexity within the current market structure, which has made the trading platform, the EMS and what firms such as Clearpool are calling the “AMS” (Algorithmic Management System), an increasingly critical aspect not only of the sell-side trading infrastructure, but on the buy side as well.
Without a strong, robust, flexible, and easily customizable platform, he explains, it will become increasingly difficult for buy- and sell-side firms to compete. “What started with sophisticated models wrapped in opaque nuance is quickly becoming a more open, easily customizable algorithmic-management infrastructure seamlessly connected to most, if not all, liquidity centers.”
“This type of platform,” says Tabb, “supports access to firms’ algorithmic suites and tools with easy and transparent ways to measure performance and enables traders to make customizations, re-measure and hone their algo changes.”
It is currently available on TabbFORUM (registration required).
