Almost two thirds (63%) of buy-side equity market participants believe outsourced desks would result in improved execution quality and trade performance when trading across regions, according to new research from Coalition Greenwich.
Of these respondents, 26% also highlighted streamlined or enhanced workflows and strategy customisation as key factors.
Two-thirds confirmed that this approach could also provide better access to liquidity in cross-border trading.
Read more – Dispelling the myths of outsourced trading
The study addresses how, as the relationship between human and technology becomes increasingly interwoven, outsourcing could be an answer to some of the key roadblocks.
In this vein, 39% of respondents recognised the value in complementing their current trading processes with outsourced platforms “under limited circumstances,” as some of those surveyed specified a desire to supplement their internal traders.
This figure was up markedly from similar research in 2020, which had the result at 5%.
The report iterates the importance of human traders when trading across regions in practice, where the personalised service high-touch trading offers is often omitted, presenting additional complexities.
“The nuanced market understanding brought by human expertise remains a crucial element. Humans complement automation by providing essential insights, context and the capacity to interpret intricate market signals, exercise judgment in uncertain times and apply critical thinking in risk-reward assessment.”
When it comes to the pain points associated with cross-border work, around half of the respondents confirmed that supplementing trading functions with outsourced providers offers potential solutions.
For example, 53% believe it could answer the problem of lack of familiarity with local markets, highlighting gaining local market insights (44%) and understanding market structure nuances (44%) as among the main concerns.
In addition, the relevance of human presence when it comes to 24/7 trading, and securing broker coverage during off-hours, is also a key consideration, with firms seeking to build talented trading desks for noncore shifts.
“Unsurprisingly, the buy-side’s primary pain point here is operational efficiency, particularly in post-trade workflow functions like mid/back-office and settlement issues […] 19% consider this the most significant pain point, with 49% ranking it in the top three concerns.”
Almost half of respondents also confirmed that outsourcing could address the issue of insufficient overnight or extended-hours coverage.
The report suggests that the findings highlight a real opportunity for providers if they make effective enhancements, supplementing “with highly skilled traders, placed in local markets, to deliver top-tier execution alongside seamless integration with clients’ operational systems and workflow technologies”.
Read more – The Outsourced Trading Handbook 2023
Coalition Greenwich shared the response of one portfolio manager, which highlighted how outsourced providers “act as an extension to the trading desk and understand [our] trading goals,” while another commented on the importance of “added expertise that [we] do not have in-house.”
Back in 2020, a Coalition Greenwich study found that only 5% of buy-side equity traders indicated they would be open to using an outsourced trading platform for international trading. These most recent findings therefore demonstrate a huge leap in terms of market opinion.
The results of this most recent report also echo Coalition Greenwich’s previous findings on the balance between human intuition and technology, with its assertion from 2019 arguably truer than ever: “Five years into the future, financial services work will be a true merger of the best of both humans and machines […] Investing and trading decisions will still tilt toward human intuition, but data analysis and trade execution will more often see computer automation take the lead.”
Earlier this year, The TRADE launched its inaugural Outsourced Trading Survey 2023, conducted with Global Custodian and Ergo Consultancy. More than 200 asset managers, hedge funds and other users of outsourced trading providers voiced their opinions in this first-of-its-kind piece of research.