Transparency has become the watchword by which every participant in the capital markets must now operate; almost every facet of electronic trading has become fundamentally tied to the ideals of openness and intelligibility over the past decade since the global credit crisis, and regulators worldwide continue to push for amplified visibility and culpability in all areas of operations.
Order routing and execution have become one of the core focal points for transparency in the capital markets and asset managers are growing increasingly demanding in terms of the level of transparency, standardization and breadth of data they receive from orders routed through brokers.
“Routing is a very complex space, specifically when looking at the US with the liquidity fragmentation,” says the global head of trading at a large, US-based asset manager. . “It’s complicated everywhere, but this is a space where just looking at data without any context can be somewhat deceiving or overwhelming. Transparency is vital and as a large asset manager you need to have insight into how you or your brokers are routing.”
The heart of the issue around order-routing transparency lies in the quantity and quality of data that is being delivered from the sell side to asset managers, regardless of order type or strategy. Full disclosure on not just where orders are executed, but on what other venues they might have touched, both how and why, is starting to flow a little more freely to where orders were originated, both from sell-side institutions that are starting to feel the pressure from the buy side, and from technology-oriented providers that have entered the space.
One such company is Dash Financial Technologies, which was formed in February this year through the merger of Dash Financial and LiquidPoint, Convergex’s options trading and technology business. The vendor has recently launched its web-based portal, Dash360, which delivers real-time transparency with a heavy investment in data visualization.
Peter Maragos, CEO of Dash Financial Technologies, says the vendor is seeing key demands from its buy-side clients around complete transparency on all order-routing and related analytics, adding that the industry is very much upping its game not just on visibility, but also measurement.
“It allows the buy side to not only see what is going on, but to measure it as well and see how they did versus their benchmark, or on the cost side,” says Maragos. “People are asking for more analytics capabilities so they can push that analysis upstairs to the best execution committee to show how they are choosing to execute their flow and why.”
Both the ideal and purpose of complete transparency into order routing seems relatively straightforward: The broker keeps its buy-side client happy by routing orders effectively and providing as much detail as possible, while the asset manager is able to maintain an end-to-end view of its order lifecycle. However, the main obstacles toward achieving this are rooted in technology, according to Dash Financial’s Maragos, particularly on the sell side.
“The first hurdle to providing full transparency is always technology—getting a routing architecture in place that enables it is by no means a trivial undertaking,” says Maragos. “Trying to do that with a legacy platform is even harder, especially when margins at these firms are under pressure, given increased regulatory and technology costs and decreasing client commission wallets.”
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