The traditional relationship between the buy side and the sell side is in flux. With factors such as the unbundling of research and execution dollars, the democratization of equities trading technology offerings, and new and more dynamic regulatory requirements, the usual paradigm between brokers and clients has been drastically changed. Brokers’ clients have evolving needs and they face shifting challenges, which necessitates a corresponding change in how the sell side serves them. So, in this new landscape, what traits does the buy side look for in their brokers, and how do brokers differentiate themselves and demonstrate unique value?
Those questions and more were discussed at Clearpool’s Summer Symposium event held recently at the Knickerbocker Hotel in New York. Nearly 100 attendees heard valuable insight on these topics, including an exclusive presentation from Richard Johnson, a Senior Analyst specializing in Market Structure and Technology at Greenwich Associates. Clearpool also facilitated a lively and informative panel discussion moderated by David Cushing, industry veteran and trading and analytics expert, which featured several industry leaders: Roman Ginis, PH.D, the founder and CEO of Imperative Execution; Miles Huffman, Head of Equity Analytics and TCA at Vanguard; and Jack Miller, Head of Trading at Baird.
The main theme driving the event was differentiation and the increasing desire of the buy side to “peek under the hood” and see how and why brokers are making decisions, and for brokers to explain the rationale behind those decisions to them.
Investment managers want to know what trading venues their brokers are using and the reasoning behind why they are using those venues. They want to play a more collaborative role in configuring trading strategies. Whether they take a more hands-on approach or a laid-back one, every client is different in how they want to engage, and brokers must be able to be flexible and adapt in this environment.
In fact, according to exclusive Greenwich Associates research presented during the event, “understanding my needs” was the most important factor according to buy-side firms polled on the most important characteristics of a broker relationship. “Establishing a trusting, partnering relationship is about more than just checking off items in a list,” the Greenwich Associates report concluded. “Technology is necessary, but not sufficient when it comes to building a trading relationship. Brokers have to have the best tools for execution and analytics – but when an institutional trader is trading millions – or billions – of dollars per year with a broker, having a trusting relationship is an essential component.”
What else is driving current buy-side/sell-side dynamics and the $4.4 billion equity commission pool that is up for grabs? To learn more about this money and motion and the qualities the buy side is looking for that will prompt them to move business, be sure to download the Greenwich research report, “Money in Motion: How the Sell Side Can Differentiate and Win Market Share”.