Take-away from (2) news articles today profiling proliferation of algorithmic trading strategies: The buyside “gets it”, but they don’t want it..
Excerpt from WSJ’s Bradley Hope article “Buyside Traders Move Upstairs”: Some of the world’s biggest investors are changing the way they trade in U.S. markets in response to what they say are rising risks for institutions of their size.
The strategies include conducting more “upstairs trades,” in which deals are executed among big institutions, bypassing the broader market, as well as other sophisticated order-routing techniques designed to avoid pitfalls that have become increasingly apparent to investment managers.
Investors say such measures are increasingly necessary because the proliferation of algorithmic trading and other structural issues, including the fragmentation of the market, are hurting their ability to get the best prices and execute large trades quickly.
With algorithmic trading firmly entrenched in the electronic equity landscape, buy-side traders on an eternal quest for alpha preservation are moving beyond algo selection to algo optimization, which entails monitoring and calibrating as the trade is going down.
“The real objective is to get best execution, which often requires not only picking an algorithm but managing the parameters of that algorithm subject to market conditions,” said Michael Earlywine, head trader, North America at $1.2 billion asset manager Ecofin.
One of the more compelling critiques re: above noted topic is courtesy of industry veteran and electronic trading guru Thomas Quigley, Managing Director/Electronic Trading Group for agency boutique WallachBeth Capital, “The take-away from both articles is a message that we caveat whenever institutional firms reach out to us for guidance; however commoditized electronic trading approaches have become, and however easy it may seem to choose and implement algo-based strategies, the need for consultative and agnostic guidance has never been more relevant.”
Both above-noted news articles can be accessed by clicking on the logo links adjacent to the excerpt.