Blame it on alpha but according to TABB Group in its newest research note, “Cross-Asset Trading Systems: Controlling the Trader’s Desktop,” traders on both the buy-side and sell-side need trading systems that can manage the increasing complexity of the global financial markets.
The systems must allow them to manage complex, cross-asset transactions involving cash equities, fixed income, derivatives and currencies.
“Access to markets throughout the world, many with different trading protocols and market structures, will become imperative, feeding the alpha-seeking beast,” writes Andy Nybo, senior research analyst at TABB Group and author of the note.
“Sophisticated money managers are being forced to approach investing in an entirely new way, no longer gaining exposure to an industry by simply investing in the equity of the most promising companies,” Nybo says. “Today, they’re deploying complicated, inter-related plans that expose them to securities and strategies outside their traditional comfort zone, exploiting arbitrage opportunities across capital structures and achieving investment goals by using the most efficient financial instrument, or combination of instruments, to achieve desired exposure, risk and reward.”
While both buy-side and sell-side firms are using complex trading strategies that cannot be supported efficiently by current trading infrastructures, one of the biggest challenges facing the buy side, for example, is the breadth and range of vendors that deliver systems.
Order management system (OMS), execution management system (EMS) and direct market access (DMA) system functionalities have become indistinguishable. Nybo adds: “Choosing the right product for the trader’s need is a challenge in its own right, especially when trading desks are trying to execute multiple strategies across markets with differing liquidity profiles.”
Connecting directly to market liquidity is critical for securities firms with global activity, increasing the need for real-time data, direct access and the capability to feed into front- and back-office trading systems.
“Traders on both sides of the Street can no longer simply specialize in singular asset classes,” says Larry Tabb, CEO and founder at TABB Group. “Fortunately, trading systems that do support these new, complex strategies are more broadly available and in our opinion will become indispensable to trading desks embracing the aggressive use of technology.”