The buy-side increasingly expects to get similar service for its high- and low-touch orders. Firms want their high-touch providers to be able to access the tools of automated trading if necessary to achieve best execution. At the same time, they want levels of flexibility and control with their automated trading more usually associated with high-touch. The only way for the sell-side to straddle these demands efficiently is with an order management system that integrates high- and low-touch capabilities.
With the increase in venues and more complex market structure, high-touch traders are often having to turn to algorithms and smart order routing to find appropriate liquidity. Meanwhile, clients not only want a choice of algorithms for their direct strategy access (DSA) orders, ideally with some possibility of customisation, but also expect the broker to intervene when a trade is not achieving its benchmark and work it as a care order.
Intervention capabilities are central to traditional high-touch order management systems (OMSs), but are also now necessary in automated trading systems if brokers are to meet the service expectations of today's buy side firms.
By definition, low-touch minimises manual intervention in the order flow. The client initiates the order and it flows automatically through the trading stack, from the algo box to the smart order router (SOR), to the execution venue, and out to the middle and back office. Mostly, this goes smoothly, but there are always exceptions where this straight-through processing workflow fails.
Typically, when a client sends a DSA order it will include parameters for the trade and specify a benchmark against which the execution should be measured. If the execution fails to achieve the benchmark or some other parameter, or moves the market adversely, the broker will want to know and repair the situation before it impacts the client. This requires real time monitoring and alerting and analysis of the trade flow (in addition to the monitoring required to protect against badly-coded algos that might go ‘out of control’ when given the ‘wrong’ inputs or market conditions).
Traders need on-screen information where they can actively monitor millions of trades, as well as the tools to analyse performance from multiple angles – for example, the ability to type a client’s name and a security into a Google-like search facility and see in real time how that client’s orders are doing in the market and drill down for further details. Because it is not possible for traders to follow every execution and market movement, it is also essential to build in an automated alarm system. This should be flexible and configurable, so traders can specify what they want to track and the thresholds for when alarms will be triggered.
Once traders become aware of a problem with an order or basket of orders, they will want to take remedial action. Usually, this means adjusting some parameter(s) in the algo, perhaps making it more aggressive, or changing the participation rate or the target venue. Occasionally, it might mean a more radical step of moving residual quantity to a different algo. Or the trader might spot an opportunity in the market or internally to work part of the order and slice and redirect it accordingly, or to group several orders from the same client and trade them together. These high-touch type of actions may be taken directly or following a call with the client, but either way the ability to intervene and adjust without cancelling the order and asking the client to re-submit is a prerequisite for a low-touch system.
Clients increasingly want a seamless service no matter what type of orders they are submitting. Brokers aim to fulfil clients’ orders to their requirements, improving results where they can. To achieve this, brokers need the tools to find liquidity, to quickly identify exceptions and to manually work orders where there are issues. From a technology point of view, it means converging the functionality of high- and low-touch order management systems.
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