Greenwich Associates Finds Buy-Side's Expanded Use of Trade Performance Analysis Tools is Eclipsing Client-Broker Loyalty

New research underscores the increasing role of execution quality analysis in capturing and retaining trade flow

NEW YORK, March 21, 2019 – A new Greenwich Associates study “Customer Retention in the Age of Electronic Trading,” shows buy-side clients are increasingly reallocating their business among broker-dealers as they apply heightened scrutiny to execution quality. Amidst this more advanced evaluation of trading effectiveness, Corvil believes 2019 is a pivotal year for trade execution analytics.

Greenwich Associates examined 2,200 pairwise broker-client relationships and found old alliances shifting, with significant and increasing levels of order flow reallocation. Between 2017 and 2018 the median institutional client was reallocating a third of its U.S. equity trading volume among brokers, and that median volume reallocation increased by 50 percent between 2014 and 2018.

This status quo shake up coincides with the buy-side’s use of sophisticated tools to assess broker performance. Data from the widespread use of Transaction Cost Analysis (TCA) in the investment process is also being used by trading firms to determine execution quality and to reallocate their flow accordingly. When asked which aspects of their execution, if improved, would have the greatest effect on their profitability the number one response was fill rates, followed by latency and cancellation rates.

“The buy-side has been weaponizing their TCA infrastructure, turning it from a compliance tool into a trading tool,” said Ken Monahan, Senior Analyst, Greenwich Associates. “This has significantly raised the bar for the sell-side by enabling the buy-side to measure outcomes precisely and to evaluate relationships accordingly.”

Greenwich Associates advises firms looking to either defend themselves against reduced client loyalty or to leverage it to capture share, to “monitor their own messages, executions and to use error detection and machine learning to address issues before they rise to the level of being detectable by the clients.”

“What’s clear is that in a competitive environment that is increasingly characterized by a greater willingness of clients to reallocate their flow on the basis of increasingly perfected performance measurement, there is no substitute for execution quality,” said Monahan. “Whether seeking to secure their clients’ loyalty or to capture share from rivals, sell-side firms would be wise to ensure that their technology stack is providing them with as much transparency and efficiency as possible. They must, because their clients are.”

As the leader in performance monitoring and analytics for the world’s financial markets, Corvil provides real-time visibility into key aspects of execution and insight to optimize trading performance. The firm has developed a suite of execution analytics which addresses performance across the order life cycle - from client and trader intelligence to market data quality and performance to trade plant optimization to venue and counterparty analysis. This analytics suite is designed to empower application and infrastructure teams as well as e-commerce and markets teams to quickly detect performance anomalies; perform multi-dimensional analysis of clients, orders, infrastructure performance and venues; identify optimization and order routing opportunities; and to provide clients with improved execution and transparency.

While this study echoes sentiments expressed by many of its sell-side customers on the nature of performance transparency requests from investors, Corvil observes the level of detail now goes beyond fill rates of orders to monitor execution. Firms are expressing demands for analysis by order type, symbol and/or broker and want to identify anomalies across venues.

“Many firms face challenges in obtaining a timely and actionable end-to-end view of their execution across the order lifecycle and an understanding of how traders and clients are experiencing that service,” said David Murray, Chief Marketing and Business Development Officer at Corvil. “Corvil’s execution analytics offerings provide insight to improve trading performance and to empower brokers to take action to retain and grow client order flow with improved customer outcomes and transparency. This insight, when actioned, can drive optimal execution and deliver a performance advantage.”

Corvil has advanced its solution with AI-powered data analytics to deliver the trading intelligence to optimize execution quality, client experience and operations. Its real-time visibility into client order activity and outcomes enables brokers to identify strategies and services to help clients achieve their goals as well as service differentiation by providing the much demanded transparency about service execution.

Later this year the firm will launch its next-generation predictive trade execution analytics. Applying machine learning and artificial intelligence to machine-time data, the quantitative relationship between trading systems performance and trade outcomes can be learned. By identifying performance factors that reliably predict outcomes, such as latency, the type of order, or symbol the system is trying to trade, Corvil's order execution analytics reveal where improvements should be made to ensure favorable trading results.

Corvil was recently voted “Best Trading Infrastructure Monitoring Platform” by the industry.