Tag Archives: high-touch execution


Buy-Side Managers Say: Hooray for High-Touch

High-Touch or High-Tech? That is The Question.. Virtually any industry professional will acknowledge the now two-decade evolution of financial markets whereby the electronification of equity, options, currency and even fixed income markets has been the primary catapult for business models wrapped in high-tech trading services, trading software applications and niche offerings advanced by trade execution providers throughout the global financial markets. As a consequence, “button-pushing” has displaced a myriad of traditional “high-touch” broker-dealers whose value-add had been completely dependent on human capital; professional traders who are experts at navigating markets and skilled at sourcing liquidity via networks of embedded relationships throughout the trading market ecosystem. One need only count the number of sell-side traders who have been “put out to the dinosaur pasture” to appreciate the impact of ‘progress.’ But, any industry trading technology wonk who insists they can hear the fat lady singing  “the last nail is about to be placed in the coffin of high-touch trade execution”, a recent survey conducted by Consultancy Aite Groupe suggests that a significant number of buy-side managers greatly prefer high-touch to high-tech. Aite’s study is based on an online survey of 42 buyside firms throughout the second half of last year, with the majority of firms managing assets of more than $50bn.

Below excerpt from latest MarketsMedia.com story “High-Touch Hangs On in Equities” by Shanny Basar frames the story..

Fund managers still prefer high-touch, rather than electronic execution for more than a third of US cash equities and non-US cash equities according to new research.

Consultancy Aite Group said in a report Buy-Side Front-Office Trends: The ABCs of Trading Behavior that it is “mildly surprising” that high-touch execution styles are still preferred by investors for as much as 38% of US cash equities and 41% of non-US cash despite equities having the longest history of electronic trading and the earliest adoption of algorithms.

High-touch typically involves agency execution with discretion, principal/capital commitment and investors requesting a direct quote over the phone from a sales trader or passing an agency order for them to work.

“This may partially be explained by the increasing complexity associated with market fragmentation in the US equities market and the proliferation of dark pools and exchanges, all competing for order flow,” added Aite. “Average trade sizes have shrunk to less than 200 shares per trade, typically a small fraction of total order size. And at the same time, there continues to be challenges with sourcing liquidity for mid- and small-cap stocks.”

“As a result, sales traders remain relevant in assisting with trade facilitation and intermediating an agency block trade between two buyside customers with opposite sides of an equities trade.”

Sales traders are also sometimes asked to intervene in algorithmic orders, although intervention or suspension are both very rare. For example, human intervention may be required if intraday market conditions, such as extreme volatility, affect an algorithm’s performance.

However, the study also found that electronic trading continues to gain its footing across all asset classes at a steady pace across the globe. Therefore investors investors need to continue in invest in upgrading technology to find new sources of alpha, comply with new regulations, cut costs and increase efficiency. “The days of phone-based or plain vanilla chat-enabled trading are numbered,” added Aite.

Matt Villarreal, Mischler Financial Group


However many broker-dealers have failed to keep up and have since gone the way of the Ford Pinto,  there is a cadre of always-forward-thinking sell-side desks who refrained from making “all-in high tech” bets, and instead, embraced the proposition of combining the best of both high-touch and high-tech applications. According to Matt Villarreal, the head of global equities for agency-execution firm and boutique broker-dealer Mischler Financial Group, “Most thoughtful fund managers understand that risk-reward analysis applies not only to the underlying investment style or strategy, but also when mapping out execution strategies, and whenever “best execution” is a component that has to be weighed.” Added Villarreal, “Because “best execution” has become a ubiquitous phrase, every manager has their own opinion as to the meaning, often boiling down to “the right price at the right time when considering all of the factors.” The institutional managers we work with truly embrace the value of our combining bespoke, high-touch capabilities that extend across US domestic as well as international stocks, with best-in-class trading technologies in order to achieve their view of true best execution.”

To continue reading the entire story from MarketsMedia.com, click here Continue reading


Buy-Side Says: Don’t Just Set It and Forget It

Cheryl Cargie, head trader at buy-side fund manager Ariel Investments in Chicago, said that while the buy side is looking for more from its sales trader coverage, it depends on whether a buy side trader is representing a passive or active strategy. For a veteran with over 20 years in trading and representing all of Ariel’s trading strategies, Cargie wants a sales trader who will partner with her and be proactive.

“For a traditional trader like me, I want my sales traders to pay attention to my order and not just ‘set it and forget it’,” Cargie said. “I need them to be an extension of me.”

Cheryl Cargie
Cheryl Cargie

High-Touch Sales Traders Go Electronic

(MarketsMedia) By , Senior Editor ·

Today’s high-touch or cash sales traders are looking to electronic trading tools and skill sets to stay relevant in today’s equity market structure.

Born out of a “if you can’t beat them, join them” mentality, sales traders are increasingly learning about electronic trading tools to cater to the buy side’s increasing appetite for technology along with human interaction. If not, more traders could find themselves out of work in a persistently difficult job market.

According to a recent report from Greenwich Associates, the human touch in trading is still as important as ever, even in a largely electronic marketplace. As the buy side looks to their brokers for an increasing array of services, simply acting as an order taker is no longer enough to ensure return business. The sell-side sales desk must provide proactive suggestions, understand market structure and offer clients advice on how to best leverage trading technology. And that is something an algorithm or smart order router simply cannot do.

Re-enter the human sales trader.

Kevin McPartland, head of market structure and technology research at Greenwich Associates, told Markets Media that new buy-side demands are being handled by a smaller sales force than 10 years ago. So in order to provide a high level of service to the buy side and keep its business, the remaining top-notch sales desks are leveraging technology “not only to help clients trade, but to better understand their customers’ portfolios, trading habits and profitability.” He added that technology does not replace human intuition in this case, but instead enhances the abilities already present on the desk.

To continue reading John D’Antona’s column at MarketsMedia, please click here

Trade Execution 101: High-Touch is NOT Out-of-Touch-Those Who Disagree Are..

Below courtesy of excerpt from front page article by Dan Strumpf “Markets Keeping Faith in Humanity” in July 29 WSJ Money & Investing section.

wsjlogo“After years of ceding ground to trading via computer programs, buying and selling stock the old-fashioned way—over the phone or its modern equivalent of instant messaging—is holding its own…

“…Last year, about 55% of stock trading by dollar volume took place in a “high-touch” fashion, among human beings communicating one on one and agreeing on the price, according to consulting firm Greenwich Associates, which surveys hundreds of large investors every year. That is still down from the past two years, but only slightly. The figure was 57% in 2012 and 56% in 2011. In 2004, before the introduction of new trading technologies and the proliferation of high-speed trading, the number was 71%….

“…Big money managers cite several reasons for continuing to keep human trading in their tool kits, even though it costs more than computer trading. They include the bewildering spider web of stock exchanges, concerns about aggressive high-frequency traders, and the downturn in volumes that has made it challenging to complete larger trades. And, in many cases, investors say they value the color on how, where and why a stock is trading that only human traders can provide…”

Michael Wallach, CEO WallachBeth Capital
Michael Wallach, CEO WallachBeth Capital

Noted Michael Wallach, CEO of agency-only execution firm WallachBeth Capital, the institutional brokerage specializing in ETFs, institutional options and a provider of independent equity research within the healthcare sector, “The WSJ article underscored important talking points voiced by a broad universe of investment managers who we speak with, most notably their recognition that while screen-based markets provide context, those markets are not only fragmented, but are 1-dimensional when considering the trading landscape is always 3-dimensional.”

Added Wallach, “Managers who position themselves as fiduciaries should require their brokers to conform to best practices, which includes providing both color and navigation skills away from the screen in order to source true liquidity at the best available prices.” Continue reading