The beginnings of tomorrow’s low-touch landscape

Charlie Campbell-Johnston, Managing Director, Automated Intelligent Execution (AiEX) and Workflow Solutions at Tradeweb, looks at the drivers and implications of increased automation in low touch trading.

Prior conversations about low touch trading centred on whether organisations should or shouldn’t embrace automation. The debate has now moved on, with firms asking themselves how many trading functions should be automated, rather than if they should be doing it at all.

Today’s discussions are about how the buy-side can better generate alpha, make better use of data, mitigate operational risk or enhance their search for liquidity. In short, the buy-side has become much more interested in how automated solutions enable them to execute in a more efficient and strategic manner. 

Embracing the future

The growing appetite for solutions such as Tradeweb’s automated intelligent execution (AiEX), over the past year, shows how organisations have become acutely focused on innovation, recognising that automating workflows can have a rapid positive impact on capacity. In September 2020 we saw 72% of trades being automated in ETFs alone (Source: Tradeweb).

Whether it is the automation of smaller orders, or trades that conform to a specific set of rules, buy-side firms are universally recognising the value in freeing up experienced personnel to focus on more important trades. As such, these firms are now in the process of identifying and automating those processes in order to achieve either operational or trading gains.

Like any innovation, organisations need to become entirely comfortable with these new processes and we believe it is important that clients have sufficient controls within their existing parameters to ensure they can intervene manually, should they wish to. This supervisory role is likely to become the norm for the trading desks of tomorrow. We have already seen that the profile of traders in leading roles is shifting.

Complementing this trend, there is also an increasing appetite for the consumption of more data to inform and analyse both pre- and post-trade decisions. Furthermore, using the swaps market as an example, automation has been the catalyst for a new profile of systematic trading that has been adopted by clients looking to generate new trading opportunities. 

This is new business facilitated by the advent of automation, rather than the migration of existing flow from other execution methods.

Looking to the future

The transformation of low touch trading is affecting everyone across the market. Tradeweb is no different. We have already noticed a shift in how we work with our clients.

Today, we work on a much more consultative basis than ever before, spending more time on understanding clients’ pain points, their workflows, how they want to trade and the reasons why they have segregated trading activity. This approach of close collaboration has also influenced how we develop new protocols and add new functionalities onto the trading platform - our recent expansion of portfolio trading functionality for corporate bonds being a good example of this. Nowadays, our clients expect us to think about the automation potential for every kind of electronic trade in every asset class.

To date, much of the focus has been on the automation of the most obvious orders such as government bonds, investment grade corporate bonds, ETFs and interest rate swaps. But the potential is much broader - we expect increasing numbers to embrace automation and have invested heavily to ensure the automation functionality and infrastructure of our platform is prepared for a significant increase in throughput volume.

Technology continues to provide us with favourable opportunities that extend well beyond the simple automation of existing processes. It can help us to intelligently process very large amounts of data and find new and creative ways to achieve positive investment outcomes. Automation and the harnessing of data can not only be used to prove best execution policy, but also define rules in accordance with a particular trading strategy such as minimising transaction costs or target index tracking.

With regulation pushing investors to be more keenly focused on execution quality and liquidity than ever before, the direction of travel is clear – a more efficient, automated, market benefiting all market participants, with better visibility and liquidity options than ever before.