Increased spending on compensation in fixed income drove buy-side trading desk budgets up approximately 4% from 2014 to 2015, according to a new report, Trading Desk Optimization: Talent Trumps Tech, from Greenwich Associates.
The results of the Greenwich Associates 2015 Trading Desk Optimization Study show that the buy side spent an estimated $15.6 billion to fulfill trader compensation and technology expenditures last year. The average budget per desk grew at a similar 4% rate, to $4.57 million.
The bulk of the increased spending in fixed income went to trader compensation. In 2015, 70% of fixed-income budgets were devoted to compensation--up sharply from 62% in 2014—with the remainder spent on technology. The split for equity trading desk budgets was steady at 70/30 in favor of compensation from year to year.
Although e-trading in most market segments continues to grow, the idea that talent trumps technology is taking over.
"Technology is only as good as the people behind it, and buy-side trading desks are putting their money where their mouth is,” says Kevin Kozlowski, Greenwich Associates Analyst, and author of the study. “Buy-side trading desks need to be staffed with skilled technicians who have a strong understanding of both the financial markets and the advanced trading technologies used to execute trades.”
Technology After Talent
Nearly 60% of the trading desk technology budget was comprised of just two key expenditures. Thirty-five percent of the estimated total covers the cost of access and licensing fees for market data terminals used on the trading desks—like Bloomberg, Thomson Reuters and FactSet. An additional 23% pays for the order management systems (OMS).
“After several years of rapid adoption of new technology and tools to assist in trading, institutional investors are poised to take the next steps as the markets continue to evolve,” Kozlowski says. “Those steps require having the right people in place to execute further change and also measure the success of innovations already implemented on the desk.”