Custodians struggling to persuade clients to use their execution services may or may not be pleased to learn that electronic execution is poised to boom as the market fragments and institutional investors acquire a taste for lower prices. At least that is the chief conclusion of the latest research report from consultants Celent Communications.
“Providing trade execution services is becoming an increasingly risky proposition,” says a Celent spokeswoman. “Deteriorating market conditions, decimalization, the advent of Super Montage and DOT routing, and intense market competition have created an exceedingly difficult business environment for market-making firms and agency brokerages offering execution services to retail firms and institutions. Electronic systems designed to overcome some of these problems are emerging as competitors to traditional market makers and agency brokers.
In the new report, entitled Trends in Electronic Trading, Celent Communications reviews the causes of current market turmoil in the trade execution marketplace, and profiles one new entrant
– Automated Trading Desk, which it says is attempting to use technology to improve execution services while profiting from economies of scale. The report ends with a set of conclusions that set out the market’s likely development in the years to come.
“For investors attempting to get trades executed, this development means insufficient services and potentially poor execution,” says Fritz McCormick, Celent analyst and author of the report. “Retail brokerage firms, for example, looking to execute their order flows, must seek alternative venues or systems to their traditional base of market makers and agency brokers. Market makers have taken an especially considerable hit in recent years.”