Mostly… fixed income and cross product eTrading

December 11, 2006

Buyside Dealers Earn Stay Of Execution

Filed under: 2015, etrading, OMS / EMS — holky @ 3:04 pm

Interesting question in here about quantifying the value added by the dealing desk in terms of alpha in the funds performance.

Equity traders at fund management firms are having to prove they earn their keep. It is a challenging time for buyside equity dealers. Swamped by technology, targeted by regulators, scrutinised and measured as never before, dealers must also fend off the threat they should be dispensed with altogether. Advances in trading technology mean fund managers can for the first time realistically consider outsourcing equity dealing.

While some firms have invested heavily in updating their dealing desks, others are only beginning to assess their capabilities. With better analysis of trading performance, the contribution of the dealing desk to fund performance can be isolated. The problem for many dealers is that in stark numeric terms, even the best are likely to have only a marginal impact on returns.

If the choice of execution venue and way the order is executed doesn’t have a material impact upon the return achieved then what the hell is all this fuss about best execution?  If the problem is actually that an execution desk costs too much and so eats up any alpha they achieve through clever execution and knowing the market – then surely the buyside execution desks face a similar and parallel future to the 90% sellside traders previously discussed;  creating and managing algorithms (/trading rules) in the machines that are doing the trading –  in this case the buyside OMS.



  1. Interestingly many Funds still have the Fund Managers executing their own business, rather than using a centralised dealing desk, in Bonds. Some of them surprisingly big. In many respects the value-added by having the execution function taken from the Fund Manger’s workflow is difficult to quantify – more time to “manage” the client portfolio, conceive fresh ideas/strategies etc.

    For the Buyside dealers the key is becoming more involved in structured product/derivatives execution as leveraged funds at traditional Long Only funds grows and Long Only mandates allow for more derivative use.

    Just as it has to a large extent on the sellside flow trading desks, the buyside dealer who trades only on bonds (esp. Government bonds) is going to be young and on a learning curve.

    Comment by waratah — December 12, 2006 @ 10:10 am

  2. PS- I hate how the press focus so much on equities. I know that is the “main” asset class but……..anything you read on bonds & related derivatives offers no insight.


    Comment by waratah — December 12, 2006 @ 2:32 pm

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