Thursday, February 7, 2019 Stamford, CT USA — Only 2% of traders said they definitely would execute electronic orders with a broker who only used SIP data in their algos, and nearly 1 in 3 want the SEC to pull the plug on the Consolidated Audit Trail (CAT), which could someday shed light on the role that algorithmic trading and other factors are playing in causing market volatility. 

Those are two of the key findings of a new report, Investors’ Take on Market Structure Issues in 2018/2019, from Greenwich Associates that examines some of the most contentious issues pertaining to U.S. financial market structure. For the third year, Greenwich Associates canvassed the institutional trading community to assess opinions on market structure issues currently being debated by market participants and reviewed by regulators. Investors provided feedback on the Transaction Fee Pilot, Exchange Market Data fees, CAT, and other topics.

Questioning the CAT

It was announced at the beginning of the month that stock exchanges were firing the technology provider charged with building the CAT. While the data in the report was conducted before the announcement, many buy-side traders were also beginning to express doubt. Although 39% percent of buy-side traders are supportive of the CAT, 27% feel it should be abandoned because costs will outweigh benefits.

“The benefits of the CAT may have faded in the minds of market participants,” says Richard Johnson, Vice President of Greenwich Associates Market Structure and Technology and author of the new report. “But now, as traders are once again left scratching their heads about the root cause of a recent spike in market volatility and wondering if algorithmic trading could be to blame, an operational CAT might be able to provide answers.”

Direct Feeds are Essential for Algos

The Greenwich Associates data highlights that nearly all institutional traders see direct feeds as a “must-have” resource. However, about one-third of buy-side traders indicated they would trade with electronic brokers if there was regulatory clarity indicating they would still be fulfilling their best execution requirements.

“Many buy-side traders feel they would either be in breach of their fiduciary duty or would get poor performance if they traded with a broker who didn’t have direct feeds,” says Richard Johnson. “Our data shows that direct feeds are a requirement, not an option, for serious electronic brokers.”