WatersTechnology: Buy-Side Firms Seek Order-Routing Transparency to Measure Broker Performance

By Jen Fagenson

May 8, 2017

Share

The call from the buy side for greater order-routing transparency has put pressure on brokers to divulge more granularity around data and enhanced post-trade analytics technologies. Waters’ John Brazier finds that order routing is intrinsically bound up with Mifid II and its implications for best execution and algorithmic trading, as complete transparency into how and why orders are routed has become a must-have for asset managers.

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.”

The US-based global head of technology says that greater data granularity and consistency enables buy-side firms to ask better questions of their brokers and make better trading decisions based on both quantitative (transaction-cost analysis) and qualitative (trader feedback) metrics. The asset manager’s objective, like many of its peers on the buy side, is to maximize liquidity and minimize market impact, across both passive and aggressive strategies, a goal that is unlikely to be achieved if a broker is routing orders to a lit venue or is using an order type that might have a significant amount of information leakage.

“We have taken it one step deeper and that is in the venue analysis,” he explains. “We were working with a vendor in the US that would take routing data at a fairly detailed level from each of the providers, broken down into a bracket concept. That gave us the ability to look at a comparative nature between the different providers in each of the brackets and see certain things in terms of fill rates, the amount executed in terms of what they send, how much they internalize, where they are going, what types of orders they use, how much information leakage there is, and how much participation or liquidity capture there is.

To read the full article, click here.