Clearly, traders are seeing benefits from having more flexibility in how they achieve desired exposures and this flexibility has contributed to improved P&L performance.
Buy-side firms boosted spending on technology last year, with fixed income trading desks devoting the largest chunk of budget to technology compared to equity and foreign exchange desks.
A new report from Greenwich Associates revealed that overall trading desk budgets increased a modest 4% last year in the US and Europe. On average, buy-side fixed income trading desk budgets were $2.8 million, while equity and foreign exchange trading desks saw budgets of $1.8 million and $1.6 million respectively during the year.
Greenwich Associates said that desks trading less liquid assets are allocating more of budgets to technology. Fixed income desks allocated 41% of budgets to technology, compared to 36% in equity.
“This trend could indicate that when it comes to sourcing liquidity, the buy side finds that a marginal dollar spent on technology returns more than a marginal dollar spent on talent,” said Brad Tingley, market structure and technology analyst at Greenwich Associates, and author of the report.
The report showed that the largest expense in terms of technology for trading desks is market data terminals, which consumed around 35% of total technology budgets. At the same time, spending on order management systems has steadily declined since 2016 as clients are paying less for such services.
Despite the results showing growth of electronic trading, the report added that human traders will not be replaced by technology and automation, but supplemented by it. The increased spend and focus on technology means that 44% of buy-side traders are now active in several asset classes, and over two-thirds are trading multiple instruments.
“Clearly, traders are seeing benefits from having more flexibility in how they achieve desired exposures and this flexibility has contributed to improved P&L performance,” Tingley added.
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