More spent on technology, less spent on traders
February 13, 2018

Technology spending is crowding out trader pay on institutional trading desks. Overall, buy-side trading desk budgets are expected to hold relatively flat in 2018 at US$17.3 billion industry-wide. However, a new report from Greenwich Associates shows that within those budgets, institutional investors are shifting their spending from trader pay to technology. 

As recently as 2015, institutions were spending an average of almost 70 percent of overall trading desk budgets on trader compensation, with the remaining approximately 30 percent going to technology. In 2018, that allocation is expected to shift to just 60 percent compensation and 40 percent technology.

"Although part of this year's shift can be attributed to the effects of new MiFID II rules on research and pre-trade transparency, the more general increase in technology spending at the expense of trader compensation represents a secular trend," says Kevin McPartland, Head of Greenwich Associates Market Structure and Technology Research, and co-author of the new report, Investor Spending Reaches Equilibrium—For Now.

The movement to technology spending has been most pronounced in fixed income. Initially, much of this increased spending went to gaining access to fixed-income e-trading venues. More recently, a bigger share of this spend is being used on data and the analytics to put that data to work. Institutional investors see these investments as well worth the cost. "Until very recently, most asset managers viewed their trading desks as a cost center," said Brad Tingley, Institutional Analyst and co-author of the report. "Today, they are seen as profit centers, due to their ability to create an advantage over competitors with better execution."

The growing emphasis on data is evident across asset classes, says Greenwich Associates. Market data terminals and order management systems (OMS) account for approximately half of technology spending on institutional trading desks. However, these allocations to "hardware" have decreased slightly as a share of the overall technology spend, as institutions place an increasing value on data.

Transaction cost analytics (TCA) and risk management, which encompass a variety of tools including quantitative models, portfolio construction, counterparty risk calculations, and others, are the only areas showing an uptick in spending. This trend could intensify going forward now that MiFID II (markets in financial instruments directive II) is live in Europe and US investors are preparing for the SEC's proposed order transparency rule, concludes Greenwich Associates.

 





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Technology spending is crowding out trader pay on institutional trading desks. Overall, buy-side trading desk budgets are expected to hold relatively flat in 2018 at US$17.3 billion industry-wide. However, a new report from Greenwich Associates shows that within those budgets, institutional investors are shifting their spending from trader pay to technology. 

As recently as 2015, institutions were spending an average of almost 70 percent of overall trading desk budgets on trader compensation, with the remaining approximately 30 percent going to technology. In 2018, that allocation is expected to shift to just 60 percent compensation and 40 percent technology.

"Although part of this year's shift can be attributed to the effects of new MiFID II rules on research and pre-trade transparency, the more general increase in technology spending at the expense of trader compensation represents a secular trend," says Kevin McPartland, Head of Greenwich Associates Market Structure and Technology Research, and co-author of the new report, Investor Spending Reaches Equilibrium—For Now.

The movement to technology spending has been most pronounced in fixed income. Initially, much of this increased spending went to gaining access to fixed-income e-trading venues. More recently, a bigger share of this spend is being used on data and the analytics to put that data to work. Institutional investors see these investments as well worth the cost. "Until very recently, most asset managers viewed their trading desks as a cost center," said Brad Tingley, Institutional Analyst and co-author of the report. "Today, they are seen as profit centers, due to their ability to create an advantage over competitors with better execution."

The growing emphasis on data is evident across asset classes, says Greenwich Associates. Market data terminals and order management systems (OMS) account for approximately half of technology spending on institutional trading desks. However, these allocations to "hardware" have decreased slightly as a share of the overall technology spend, as institutions place an increasing value on data.

Transaction cost analytics (TCA) and risk management, which encompass a variety of tools including quantitative models, portfolio construction, counterparty risk calculations, and others, are the only areas showing an uptick in spending. This trend could intensify going forward now that MiFID II (markets in financial instruments directive II) is live in Europe and US investors are preparing for the SEC's proposed order transparency rule, concludes Greenwich Associates.

 



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