2008 Industry Survey - Almost 600 industry players participated in Liquidnet’s annual Buy-Side Voice® survey.
(4) IMPORTANCE OF SELL SIDE
Participants were asked: What would your desk need to do to totally eliminate contact with the sell side? Perhaps surprisingly, only around half the respondents replied that it would be impossible to eliminate contact, far lower than our expectations. Some respondents implied it would be feasible with better technology (24%) and by hiring more traders (10%). The primary reasons respondents indicated the need to keep brokers were consistent, and almost equally distributed among the following: corporate access, color/ research, capital commitment and IPOs/secondary offerings. Other reasons included access to difficult markets and access to offerings such as algos and other products (e.g. swaps).
(5) TECH SPENDING
Only 8% of participants anticipate spending more on technology this year than they did in 2008. Around one-third of respondents expect technology spending to decrease while 61% anticipate spending will remain the same.
(6) COUNTERPARTY RISK
Counterparty risk is one of the major concerns for our respondents and received a lot more attention than in previous years. The respondents consider this as one of the key factors in best execution, from a trading point of view. Counterparty risk is one of the requirements for best execution as per MiFID.
(7) SHORT SELLING
Regulators in a number of countries instigated short selling restrictions last year in an effort to calm volatility. We asked: Have short selling restrictions helped or hindered you as a trader? Most respondents (63%) felt that there was no impact. Interestingly, only 3% of respondents felt that the short selling restrictions had helped their trading. The majority of hedge fund traders believed it had hindered them. In addition, many long-only members felt that the restrictions had lead to a decrease in liquidity, and an increase in spreads.
(8) ACTIONABLE IOI’s
Actionable Indications of Interest (IOI’s) are not a new concept. More than two thirds of European and North American respondents are familiar with IOIs, while Asian respondents were less familiar (56%). The community is clearly interested in having an ability to access actionable IOI’s. However, it still has concerns about what information gets disseminated to whom and the information leakage that results from that action.
(9) TRANSACTION COST ANALYSIS (TCA)
Survey results indicate that the usage of TCA varies significantly among participants. For some respondents it is an integral part of their investment process, whereas others view it as a “tick the box” exercise for clients and the investment committee. The major improvements that were suggested were as follows: flexibility around benchmarks, ability to capture PMs’ instructions and traders lack of discretion, data integrity, ease of use, and other functionality improvements such as real time monitoring and the ability to combine pre and post trade analytics.
In short, many participants felt that the current TCA offerings were unable to capture enough relevant, real-time information to be able to draw meaningful conclusions about how well any particular trade was executed.