Outsourcing Trading: a solution in a challenging environment

Outsourcing Trading: a solution in a challenging environment

avita
16 July 2022

Portfolio managers were hesitant to accept outsourced trading in the past due to the fact that sell-side research was linked with trade execution. There were also concerns about information leakage and loss control. So what’s changed?

Effective January 2018, research payment must be distinct from trade execution fees. Portfolio managers’ historical concerns that removing the trade execution from the research provider would affect the quality or quantity of research are becoming irrelevant. Market abuse monitoring and client confidentiality are both regulatory obligations. Any risk of information leakage can be further reduced if there’s no incentive to share information.

In a world where overheads are closely scrutinised, trading desks are becoming more of a cost. The growth of electronic trading was initially encouraged by the cost pressures on the sell-side. These pressures, along with changes in the market structure, have encouraged the buy-side down a similar path.

Trading has become highly commodityized and many trading desks don’t provide the same value as they used to. While it is understandable for managers to enjoy trading, it is a luxury they cannot afford. A more efficient structure can replicate this experience.

It is possible that outsourcing trading will become more common. Compliance was once viewed as something that needed to be managed internally. But attitudes have changed. It is clear that investors and CFOs/COOs have a similar attitude towards dealing desks. Strategy will be driven by economic reality, not sentimentality regarding old trading methods.

The latest topic in the world of outsourcing trading is outsourced trading. But what does this really mean? Outsourced trading is often viewed as an extension of existing trading capabilities. However, others see it as a way to lower overhead and expand their assets under control (AUM). Some want to outsource their back office and middle office functions, in addition to trading. Outsourced trading should be tailored to the specific needs of each investment manager.

Outsourced trading is a strategic extension to an existing desk and can provide traders with experience in all major markets segments.

Equities
Access to global markets available 24 hours a day
FIX connectivity for all major liquidity sources
Multiple AP relationships allow for ETF creation and redemption.
Fixed Income
Access to a large list of counterparties that includes primary and regional dealers
Derivatives
There are many options
Futures

Outsourced trading is a cost-saving strategy that can help reduce the expenses of maintaining a fully-staffed trading floor.

Reduces system costs, such as order management and FIX connection, Alert/Oasis, and other administrative expenses.
When employees are away on vacation or take paid time off, retains back-up trading capabilities
Portfolio managers can concentrate on client acquisition and stock selection.
Allows trade for new products International trade can be outsourced up to a critical mass AUM

Trading desks can be expensive. To gain an edge, buy-side companies make significant investments in software and hardware. Some people would love to, but can’t afford it.

Trends in buy-side trade desks seem to be heading in one direction. One option is to invest in cutting-edge tools while relying less on sell-side services for high-touch implementation of their strategies. Larger companies with more revenue and scale can afford to have sophisticated trading desks. Outsourcing all or part the trading desk functions is another option. Although smaller companies are eager to catch up, they don’t have the scale or the ability to pay the same high fees and commission rates as larger firms. For small and medium-sized companies, it makes sense to outsource costly technology and know-how to trusted partners while directing resources toward internal research and innovation.

When outsourced trading solutions provider Tourmaline Partners approached LiquidityBook, it was facing a common challenge among organizations in the area: optimizing its systems due to the unique market positioning between the buy side and sell area. This need was made more urgent by the scale of Tourmaline’s business, with connections to over 400 sell-side counterparties. LiquidityBook’s highly flexible platform, fueled by cloud-native technology and a modular approach, and expert support team were key factors in Tourmaline’s process.

Visit: www.liquiditybook.com/case-studies/tourmaline-partners

Stock investing can be a great way to increase your profits during periods of high inflation. Although it comes with some risk, stock investing can still be rewarding and fun. Many Indians are intimidated by the idea of trading stocks. This is due to the lengthy paperwork involved and the need for stock brokers. These issues won’t be a problem if you trade online. Online share trading allows individuals to schedule their investments from their homes. You will need an online trading and demat account (such as Dealmoney) and secure internet access to invest in online assets. These are just a few of the compelling reasons to consider online trading.

Eliminates intermediaries

Internet trading is a way to trade without needing to speak to a broker. You cannot make a deal without meeting or contacting the dealer, regardless of whether you are buying shares in physical form. Online trading is a lot easier than traditional brokerages.

Lower costs

Trades are conducted without the use of brokers, which significantly reduces costs. Even though some websites may charge a fee for internet trading, these prices are much lower.

More control

Online trading and internet trading offers traders more flexibility and stability than traditional trading. Online traders can trade shares in a matter of minutes, depending on their availability. Online traders have the freedom to explore all options and not rely on broker recommendations.

Real-time monitoring:

You can exchange stocks electronically by accessing an online platform that allows you to track your investments 24/7. Logging in with your smartphone or other device will allow you to verify your gains as well as your losses at any hour of the day.

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