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Sourcing block trading activity is top priority for institutional asset managers, says TABB Group

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Some 68 per cent of European institutional asset managers rank sourcing of block activity as their most important high-touch requirement, according to research from TABB Group.

This is at a time when the majority of managers are routing order flow through low-touch channels at record levels, increasing their algorithmic use amidst changing use of risk across the equities markets. 
 
With EUR2.5 trillion worth of equities traded in the first quarter of 2014, the largest volume since 2011, an appetite for European alpha is back as TABB predicted at the start of 2013, says Rebecca Healey, TABB Group Europe senior research analyst, author of “High Touch in Low Touch: Next-Generation Trading.”
 
This increase flies straight into dual economic and regulatory headwinds challenging traditional methods of trading. 
 
As depleted resources are forcing global investment banks to restrict high-touch trading services to their most profitable clients, buy- and sell-side dealing desks are re-adjusting trading behaviours. Although European both sides have been focused on operational efficiencies and cost-cutting measures, this is no longer enough, warns Healey.
 
“The current environment now offers a rather unique opportunity to harness low-touch technology to provide quality high-touch coverage, delivering the next-generation in trading,” she says.
 
The gap between the amount the buy side wants to trade as a block has continued to frustrate traders, leading to demands to recreate block activity. But with sell-side activity coming under both economic and regulatory constraints due to increased market fragmentation, the demise of the experienced sales trader and loss of block activity means liquidity can too easily slip out of reach.  As buy-side/sell-side collaboration now becomes electronic, says Healey, vital intelligence can be harnessed through increased use of technology, including switching from executing algorithms to a wider range of workflow processes, such as position management, hedging strategies and collateral allocation, to improve data leverage across business decisions. 
 
“As performance becomes ever more reliant on alpha retention, cost controls and improved data flows,” says Healey, “TABB believes that only streamlined businesses will deliver performance, increasing the demands for more automation through the investment cycle and across all asset classes.”
 
However, according to Healey, only a global infrastructure network will enable buy-and sell-side participants to transact effectively across multiple asset classes throughout the entire trading cycle, which requires highly integrated systems operating real-time through multiple channels and devices.
 
“But the cost of best-of-breed technology across multiple geographies and asset classes will be unsustainable on a stand-alone basis, leading to increasing number of vendor partnerships, redefining the market participant landscape,” she adds.

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