CEO Chat With BTON Financial


Re-imagining the Buy-side Dealing Desk

Over the last few months discussions around the benefits of outsourcing the dealing desks have intensified. As a result of asset managers facing a number of pressures, from regulation to fee compression and performance, the option of outsourced dealing is gaining momentum. In a recent report, Consultancy Opimas suggests that by 2022, approximately 20% of investment managers will outsource at least some of their trading desks. We talk to Dan Shepherd, CEO of BTON Financial, an outsourced dealing desk for medium-sized asset managers, to find out how the industry is changing.

Tell us about BTON Financial? What does it provide?
We are an outsourced dealing desk focussed on electronification to enhance asset manager performance. Specifically, we perform the role of a broker-neutral, smart broker router. We receive orders via FIX and then send them out to the most appropriate broker by instrument type and customer.

What makes BTON Financial different?
Our real differentiation is our focus on using a technology slant to help mid- and small-sized asset managers survive and thrive in the post-MiFID II trading environment. Automation and electronification of the trading desk is happening at a rapid pace across asset classes. For example, according to a Greenwich report, in the U.S. corporate bond market, roughly 70% of the trades executed are for 100 bonds or fewer (equivalent to $100,000 or less) and over 90% are now done on electronic trading platforms. So at BTON Financial, we have set out to automate the trading process as much as possible.

We are also different in that we have no ties to existing brokers, meaning we can access the best facilities at which to execute trades. We think this independence is key to our success as it helps firms comply with MiFID-mandated best execution policies, and automation lends itself perfectly to comprehensive audit trails.

In addition, because we charge a subscription fee through a SaaS model, rather than commission through a BPS model, we are much more aligned with our customer. The focus is not about the client trading more, but rather about trading in the right way.

What kind of interest is there from the buy-side in outsourcing their trading desk?
Our typical client is a traditional mid-sized asset manager with 150bn AUM and below. We help these firms achieve economies of scale though outsourcing. This helps the smaller asset managers keep up with the huge players who are in turn making significant moves on the technology-side of things.

We are also offering to augment existing trading desks for some larger asset managers who would like to better manage their large-in-scale and more esoteric trades. To achieve scale and cost reduction, these types of automatable trades can be filtered out to BTON Financial.

What do you think has prompted this interest?
Asset managers have been heavily affected by the MiFID II regulations. There has been a radical unbundling of services and clear lines are required for cost of research, trading, trade reporting and transaction reporting. In addition, heavily reduced margins are having an affect on large technology projects and overheads.

Mid- and small-sized asset managers need to change in order to survive in the new post-MiFID II environment. Larger firms on both the sell-side and buy-side have access to economies of scale which helps ensure their success. But the electronification brought about by MiFID II can also serve small and mid-sized firms as well, especially when accessed through a SaaS model. We can help smaller asset managers compete with the big players.

What do firms hope to achieve from outsourcing?
Outsourcing is a way for the smaller and mid-tier firms achieve economies of scale related to brokerage costs. In addition, by connecting to an outsourced trading desk functionality, traders can now have access to a greater set of data for trading decisions. Non-proprietary, consolidated data sets of executions conducted across the outsourced technology platform are anonymised and shared. Trading desks can then use this information to improve trading performance – something that would previously have been cost prohibitive for smaller firms to do on their own.