How the relationship between the buy side and sell side has evolved
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The document discusses how the relationship between buy-side and sell-side firms has evolved due to numerous drivers of change including economics, regulation, politics, and technology. It notes that research and information are now more widely available digitally, self-directed trading by investors is growing, trading remains concentrated among an investor's top counterparties, and fewer dealers are able to provide the balance sheet capacity they once did. It also discusses how trading desks have gotten smaller but more efficient by focusing on execution quality, client service, and leveraging technology, and how firms are looking to better utilize data to enhance client relationships.
How the relationship between the buy side and sell side has evolved
- 1. How the Relationship Between Buy-side and Sell-side has Evolved October 2016
- 2. Greenwich Associates Drivers of change are numerous 2 • Economics: Monetary policy around the world is like nothing we’ve seen in our lifetimes. The US is (sort of) growing while the rest of the world can’t shake the credit crisis. • Regulation: Dodd-Frank was the largest overhaul of financial markets in decades; Basel III’s impacts are staring to hit home; MiFID II and EMiR combined make Dodd-Frank look like child’s play. • Politics: Brexit and the US presidential election have created enough political uncertainty to keep us all busy for a while. • Technology: Innovation both within Wall Street and outside is disrupting business as it did in the late 1990’s – but with actual profits this time. Which of these is driving the most change? Which are cyclical and which are structural? There is no single answer except change is inevitable.
- 3. Greenwich Associates Tell me something I don’t know 3 • Research and information are more widely available via digital channels, making it harder to tell clients something new. • Self directed trading by investors continues to grow across asset classes, particularly in fixed income. • Trading remains concentrated with an investors top few counterparties. • Fewer dealers are able to provide balance sheet as they once did
- 4. Greenwich Associates Trading desks are smaller but more efficient 4 • The doing more with less is the reality • Execution quality and client service are still differentiators, but the skills needed on the desk to provide and promote those differences has changed. • Desks keeping the best and brightest, with a constant focus on “upgrading” • Relationships are still key, but the value of entertainment is trumped by actual service quality • And last but not least – leveraging technology is a must
- 5. Greenwich Associates E-trading isn’t the only place innovation is needed 5 • Leveraging technology can make the “upgraded” sales desk even better despite fewer bodies. • Using data to enhance client relationships is key, but doing so well requires properly: • Collecting every relevant data point • Analyzing collected data to produce usable outputs • Putting those outputs into use both internally and with clients. • Few of our study participants believed they hit all three points, but all had plans to up their efforts.