Buy Side Increasing Use of Level 3 Data
FlexTrade Systems has integrated a feed from BMLL Technologies to deliver pricing data and analytics which is being demanded by the largest asset managers at the point of execution.
Andy Mahoney, managing director EMEA at FlexTrade Systems, told Markets Media: “Investors are always looking for an edge and the appetite for alternative datasets is not going to abate anytime soon. Our work is ongoing to make sure that we have the analytics and data that allow our clients to make sure that they are trading at their best.”
BMLL Technologies is an independent provider of harmonised T+1 data and analytics. The firm’s Data Feed is uniquely pre-computed from granular, Level 3 order book data to provide actionable insights for market quality and execution performance as well as available liquidity at different depths of the book. Level 3 is the only dataset that provides enough information to reliably predict future market states using statistical techniques.
Mahoney added that it is critical for clients to have this data at the point of execution as well as during the lifecycle of the trade.
“An asset manager may be executing in a certain way with a certain broker but the historical data that BMLL provides might make them correct course or change their strategy intra-day,” he said.
Paul Humphrey, chief executive of BMLL, told Markets Media: “One of the things that has fascinated me over the last 18 months is how much historic trade data can influence real-time trading if you have the right depth. Having that data in the workflow and throughout the trade lifecycle is vital.”
Three quarters of respondents in recent research from BMLL and WBR Insights said they use Level 3 data in their research program to improve alpha generation and mitigate risk. The study, Buy-side usage of Level 3 data analytics for algorithmic performance, found that nearly 75% of the respondents said the main reason for not using Level 3 data in their research programs was its inaccessibility.
Humphrey said in the study: “It should come as no surprise that many investment firms are looking to partner with third parties to outsource data and analytics generation.”
Two thirds, 64%, of respondents said that at least half of of their investment in new data and analytics capabilities will be from buying these capabilities and 41% said they will significantly increase their budget allocations for third-party data.
BMLL’s data and analytics is delivered via an API directly into FlexTRADER workflows so it is easy for clients to ingest the information in their desired format.
Mahoney said: “We are looking forward to seeing clients using the data in combination with our automation tools. It is one thing to just share a piece of data on a screen, it is another to automate flow on the back of it. The really fascinating elements will be where the machine becomes an augmented piece of the trader and takes control in the background to ensure that the execution strategy is optimal based on the data.”
Multi-asset class data
Mahoney continued that there was significant client demand and significant use case for the BMLL data and analytics. FlexTrade has clients on the sell side and buy side, and typically focuses on large asset managers and hedge funds with complex workflow requirements and automation requirements.
“In addition to feeding data into their systems at point of execution it is throughout the lifecycle of the trade,” he added. “The real value comes with ingesting it directly into their blotter and having it available for visualisation, but also automation capabilities and workflow optimization.”
He said FlexTrade clients trade across asset classes and there has been a huge surge of interest over the last 12 to 18 months for fixed income data.
“We are very open with our partners and regularly share demo information on how clients are using their data,” added Mahoney. “This allows them to understand the metrics they might want to build in the future and which areas of data we might want to ingest.”
Humphrey continued that BMLL currently provides equites data from 45 platforms and aims to cover all the global equities venues. In addition, the firm provides data on futures and ETFs.
“We are looking to build out more asset classes and FlexTrade has a multi-asset class approach,” he added. “Level 3 data of this depth is hard to engineer and there is no way to shortcut the time to onboard new asset classes.”
Mahoney agreed it was not easy to build out granular fixed income data.
He said: “We have the infrastructure so we very much look forward to rolling this out across asset classes.”