Outsourced trading

Wednesday, October 3, 2018 | By Marcos Frisaura & Katherine Owens

Outsourced trading

Many buy-side firms view outsourced trading in a more traditional sense: as a way to cut costs and reap the benefits of utilizing more experienced sell-side brokerage firms to handle their order routing. Other firms may utilize outsourced trading in order to manage their portfolios and rebalance their positions, or tap into another broker’s Direct Market Access (DMA) to gain access to new liquidity venues. This myriad of uses has resulted in a large number of firms implementing outsourced trading to improve their own businesses.

As the world of financial technology continues its unyielding pursuit of cost efficiency, firms are doing everything they can to “right-size” their business. For many small- to mid-sized hedge funds and asset managers, operating their own trading desk is too costly to undertake.  The cost of personnel, office space, regulation, accounting systems, order management systems (OMS) and market data terminals can quickly pile up and put unnecessary pressure on a firm’s bottom line. As a result, many of these firms have established relationships with outsourced trading desks.  Through these partnerships, both the buy-side firms and the sell-side broker dealers can reduce costs and focus on growing and improving their business.  

“After many years of caring for clients’ orders on the institutional side, CAPIS has extended its offering to the outsourced trading space,” says Matt Krebs, newly appointed Director of Outsourced Trading at Capital Institutional Services. “Working with firms that need our trading experience and expertise while complying with regulation requirements, are the core components of our business. Extending our trading desk to the desk of other firms to help investment managers manage costs is a valuable offering for CAPIS in today’s market.”

Established broker-dealers like CAPIS have access to sophisticated trading infrastructure that helps hedge funds and asset managers grow in a very crowded market space. Finding success with outsourced trading requires the ability to leverage flexible electronic trading platforms in order to reach the desired brokers while also ensuring that optimum cost efficiency is being met.

Systems like SS&C MarketTrader have robust execution management tools that are vital to trading single name, lists, programs and baskets. MarketTrader is capable of capturing a wide range of data that is used to calculate trade cost analysis (TCA). Portfolio managers can also utilize rebalancing tools like Advent Genesis™ to control the broker distribution of their orders to ensure that they are achieving best execution while also properly rebalancing their portfolios. Through these workflows, firms are able to maintain transparency and control over their orders while still reaping the benefits of outsourced trading. 

The growth of outsourced trading is undeniable; is your firm ready to cut costs, benefit from years of trading expertise and make your business stand out from the crowd?

Alternative Investments, Asset Management

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