A topic that followed from this discussion was how the changing ownership and knowledge of the buy-side is impacting the role of the sell-side. One phrase that solicited nods of agreement was that of the “execution consultant”. While the buy-side has ultimate responsibility for the trade, the sell-side retains specialist knowledge of the execution avenues available for a given security and uses its’ knowledge and technology to facilitate that decision making. Quite how this sits within the current changes to unbundling regimes remains to be seen, but the sell-sides in the room seemed willing to adapt to this new paradigm shift.
It was stated that sell-side, fundamentally, has to follow where there is client interest and demand. And those in the room seemed to suggest that currently their efforts are focusing on FX, with equities and fixed income taking a slight back seat for the time being. This is just partly a result of the ease of shifting technology around, with FX sitting halfway between equities and fixed income in terms of technological development and electronification, and partly a result of how mindsets are shifting on the buy-side and sell-side.
Later during the roundtable, platforms and precisely where people trade was also an area that came up for debate. The dozens of fixed income platforms being discussed in Europe, each of which have slightly different characteristics as to who can trade, who their counterparties are, and what size of order they are designed to post, remain controversial. Most of those in the room agreed that over the next few years there will definitely be consolidation of these platforms. It is simply not going to be similar to equities with 80 or so venues strewn throughout the landscape. There isn’t enough liquidity and it will be difficult to get a critical mass of trading on each of these platforms due to the fragmented nature of the instruments in credit. The buy-side however remain observing from the sidelines, looking to see which platforms survive before
going through the time and expense of securing connectivity.
The discussion wrapped up by tying together these disparate points. Generally it was agreed that technology was shifting to the buy-side, but the fundamental role of the sell-side to make markets and advise on execution would remain. Multi-asset technology only goes so far while certain asset classes remain very difficult to trade electronically. The shift is happening but very slowly – there is a ceiling to how much can be traded electronically. What can be better achieved, and will be pushed by the regulators, is in multi-asset risk management and processing.
All participants agreed that changes are coming to business models, market infrastructure and regulation, but the evolution of the industry takes time, (more so in some areas than others). While firmly looking to the future and driving towards innovation, it was generally accepted that a good dose of realism on the pace of change, was also essential.
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