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Whether they accept it or not, sell-side institutions are finding themselves in the unfamiliar role of information technology vendor. The adoption of algorithmic trading models by buy-side firms of all shapes and sizes is shifting trading strategies, and the technology infrastructure to supply and support them, from the realm of nice-to-have appendage to must-have service offering.

With more sell sides than ever offering both standard benchmarks and their own takes on old favourites, competition between algorithmic trading strategies is heating up. And it’s not all about alpha. The buy side doesn’t like surprises. What many fund managers are seeking from their sell-side suppliers is certainty of execution, low market impact and some degree of accuracy on hitting stated targets.

As a result, brokers and their technology suppliers are all working furiously to help differentiate algorithmic offerings, launching custom and so-called ‘adaptive’ algorithms, and taking great lengths to prove that their models perform as stated on the tin.

In essence, the world of algorithmic trading is entering a new phase as models’ acceptance by the wider marketplace is increasing pressure on firms to perform and, to some extent, productize their offerings. Expect more innovation, more customization and more choice.

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  Algorithmic Trading - Attracting The Buy Side (1.6 MiB)