Reflecting the rapidly changing market environment for the institutional trader, the theme for Liquidnet’s 2008 survey was ‘Your Marketplace, Your Future’. The survey topics were based on issues identified by industry leaders from around the world. While many responses highlighted the challenges ahead, some respondents were able to see opportunities ahead.
(1) BEST EXECUTION METHOD Participants were asked to rank different execution methods from best to worst. The results differed significantly across the various categories. Overall, Liquidnet Members ranked dark pools as providing the best execution method. This was followed by brokers, algorithms and then ‘other’. Interestingly, non Liquidnet members thought algorithms provided the best execution with dark pools at the bottom of the list.
(2) USE OF DARK POOLS Participants were asked how the fall in exchange volumes would alter their use of dark pools over the next year. 93% of respondents already using dark pools believed that their usage would increase or stay the same. However, the majority of respondents not currently using dark pools did not expect their usage to increase.
(3) TRADER DISCRETION A consistent trend over the last few years has been the increased discretion of the buy-side traders, in terms of how they trade and who they trade with. We asked the participants how much the portfolio manager (PM) should be involved with implementing trading decisions. 71% of respondents said that the trading strategy should be a collaborative effort between the PM and trader. Many traders commented that providing PM’s with color, and estimates around the likely cost of entering and exiting positions, was becoming a more important part of their role. Interestingly, in Europe 43% of respondents thought the decision on how the order is executed should be left entirely to the trader.