29 May 2015
Your browser is unable to support Flash files.

Off-exchange trading hitting market quality - US buy-side

13 November 2012  |  4210 views  |  2 Stock exchange screen up and down arrows

Most US institutional equity management traders think that off-exchange activity is now hitting market quality but opinions vary over what should be done about it and by whom, according to research from Tabb Group.

In its latest annual benchmark study on institutional equity trading, based on interviews with 66 head traders, Tabb warns that market structure continues to be a major buy-side concern. With a third of US equities volume traded off-exchange, 60% of those interviewed say market quality is being affected.

In addition, the buy side's trust in dark venues has been challenged by recent regulatory investigations of several proprietors. Yet, despite two thirds admitting trust issues, traders know to access liquidity they must keep sending order flow into the dark.

Meanwhile, the whole institutional investment landscape is on the cusp of major change, with both buy-side firms and sell-side brokers focused on restructuring, says Tabb. Commission budgets have been falling year after year, yet investment managers demand the same level of services from their brokers and that "dynamic is unsustainable", says Tabb, leaving many sell-side firms at "breaking point".

Meanwhile, while the buy-side recognises the need of brokers to adapt, institutional investors are worried that consolidation of services may lead to degradation in quality and the loss of anonymity between the high touch and electronic desk. Nearly seven out of 10 believe maintaining anonymity between high- and low-touch trading is vital.

Cheyenne Morgan, research analyst, Tabb, says: "The most-valued features such as anonymity and expertise stand to be compromised as the sell side will be forced to explore new ways to do more with less. Maintaining client trust while consolidating multiple roles into a single-touch point will no doubt prove challenging but is a must in today's environment."

Comments: (2)

Neil Crammond - evoi - london | 13 November, 2012, 10:36

HFT  ; dark pools and other arbitrage trades will obviously affect market quality ........... Did anyone seriously think it would increase quality ?

Currently dark pools are better than HFT  to which i agree but thats like comparing herion and cocaine !

Be the first to give this comment the thumbs up 0 thumb ups! (Log in to thumb up)
A Finextra member | 13 November, 2012, 11:15

Its interesting that we call the industry as either a buy side or sell side when for most there is hardly a difference in business and operations. This blurring of divisions is one reason why quality is hard to provide and even harder to prove. A regulatory and legal restruturing is called for but the presuposes that regulators know what they want and know how to police it

I wont hold my breath

Be the first to give this comment the thumbs up 0 thumb ups! (Log in to thumb up)
Comment on this story (membership required)
Log in to receive notifications when someone posts a comment

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board, sign up now.

Related blogs

Create a blog about this story (membership required)

Related stories

11 May, 2012
12 September, 2011
10 June, 2008

Related company news

 

Top topics

Most viewed Most shared
CBA to test Ripple for intra-bank transfer...
4976 views comments | 23 tweets | 21 linkedin
Visa Europe opens innovation hub in Israel
4756 views comments | 18 tweets | 9 linkedin
BBVA rolls out 'remote control' card app
4418 views comments | 24 tweets | 25 linkedin
MasterCard's $19m Target settlement falls...
4292 views comments | 7 tweets | 5 linkedin
eBay and Village Capital run accelerator f...
4183 views comments | 10 tweets | 4 linkedin

Featured job

Basic £90-110K OTE c. £200K AND NO CEILING
London based with substantial travel in the DACH Region

Find your next job