Asset Managers Farm Out Trading As Costs And Complexity Climb | 8/1/2019 | Staff
LONDON (Reuters) – It’s 10 o’clock at night, and Benjamin Arnold’s day is just beginning. The former Goldman Sachs trader is gearing up to trade equities in Asia from his small office thousands of miles away in Park City, Utah.

He’s not trading his own book, but rather is taking orders and executing trades for a client, an Asian asset manager.

Years - Hedge - Funds - Banks - Arnold

After almost 15 years working at hedge funds and banks, Arnold launched an outsourced trading firm, joining a growing crop of niche companies aiming to tap burgeoning demand for outside help from small and mid-sized asset managers.

“There comes a time when you have to decide between standing by and watching the world change or stepping up and becoming that change,” the 37-year-old said.

Burden - Money - Managers - Margins - Developments

A heavier regulatory burden on money managers, razor-thin margins and rapid technological developments in trading are driving many to cut costs and hire outside firms to handle their day-to-day trading.

The pace of demand has accelerated this year in particular as asset managers feel the pinch following the introduction in 2018 of the EU Markets in Financial Instruments Directive (MiFID II) which slapped more onerous paperwork on them.

% - Fund - Firms - Trading - Company

It is as much as 40% cheaper for small to medium-sized fund firms to hire an external trading company than employ two traders themselves, according to interviews with executives from more than a dozen asset managers, banks and brokerages, as well as industry experts.

Michael Broadbent at Ergo Consultancy, which helps set up trading desks and advises fund managers on regulation, has seen a “giant switch” this year.

Trading - Team - Liquidity - Venue - Broker

“It is almost impossible for an in-house trading team to stay focused on every new and opening liquidity venue, electronic broker, non-incumbent exchange and crossing network while continuing to execute their existing business to a MiFID II standard of best execution,” he said.

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