March 28, 2023 | Stamford, CT — Buy-side equity traders are spending increasing amounts of time searching for liquidity in fragmented markets, and they are doing so amid constrained budgets and smaller team sizes. These challenges, combined with regulatory changes, are increasing pressure on buy-side trading desks to automate their workflows.

Rapid evolution in global equity market structure has dramatically changed the job of equity traders and the process of ensuring best execution on trades. In addition to overall transaction costs, determining best execution today entails careful analysis of trading venues and the performance of algorithmic strategies—factors that have only emerged as primary considerations over the past decade or so. To ensure positive outcomes in these areas, buy-side traders focus on finding the right partners for low-touch market access. 

“Buy-side trading desks are seeking out providers who can deliver essential features like liquidity in small/mid-cap stocks, access to dark pool liquidity, anonymity and fast execution, and low latency on trades,” says Jesse Forster, Senior Analyst at Coalition Greenwich Market Structure & Technology and author of The Globalization of Algorithmic Equity Trading: A Buy-Side View.

Assessing and Managing Algos
The buy-side traders participating in a new study from Coalition Greenwich are devoting significant time to evaluating the performance of algorithms, as measured by metrics like market impact minimization, implementation cost shortfall and internal VWAP.  According to study participants, successful algorithmic trading providers will need to build reliable and easy-to-use platforms, backed by high quality support, with access to segmented dark and conditional liquidity as differentiators.

The buy side also puts significant value on controlling the ability to route (or not route) to particular venues. Approximately 80% of traders, whether by market-traded or office location, say this is very or somewhat important. 

“While the buy side may not be as interested in micromanaging algorithmic logic—especially via an order ticket—they do want control over which venues they access,” says Jesse Forster.

The Globalization of Algorithmic Equity Trading: A Buy-Side View identifies the similarities and differences in perspectives of buy-side traders across North America, the EU and the U.K. as they pertain to best execution, algo platform and venue selection, strategy discretion, regulatory initiatives, and market microstructure. The report also identifies what buy-side traders see as the biggest market structure challenges, and the changes needed to overcome them.