Traders today have considerable control over decisions dealing with where and how to best execute and process transactions, but according to TABB Group in a new research note, written by Robert Iati “this greater freedom also comes with greater responsibility for buy-side costs” that are dragging down funds’ performances.
The solution, he says, is to rein in out-of-control clearing costs by using a central counterparty model where the industry’s algorithm providers can aggregate their trades.
“Some of the largest asset managers are now spending over $170 million per year on trade processing costs alone much of which is a direct drag on fund performance,” says Iati, partner and head of research at the financial markets research and consulting firm. “With expanding volumes due to decimalisation and now algorithms and dark pools, asset managers are forced to address solutions to reduce their back-end costs.”
He adds: “The buy side’s commitment to solving this problem will help stem the tide of this unabated rise in custodial fees, and prevent these fees from having a significant negative impact on their customers’ returns,” concludes Iati.