Featured providers:

Data/Book Store

Collateral:Securities Lending, Repo, OTC Derivatives and Future of Finance

Magazine

Institutions Shifting Away from Full-Service Brokerage, BTIG Says

Posted: 08 Feb 2012

A trend away from a full-service model and toward a separation of research and trading execution is guiding institutional clients to seek out disaggregated brokerage models, according to Paul Brech, CEO of BTIG Australia, a global financial services firm specialising in institutional trading and related brokerage services.

“The first thing that we see is that research is becoming a commoditized product,” says Brech. “It’s freely available, all the players produce a lot of research, it’s fairly accessible, and increasingly, we’re seeing independent people producing their own research and people are valuing that because it’s independent. Therefore, a lot of clients don’t see that the research that they get from the major houses is of significant value. If you’re moving away from the full-service model and execution is very important … then you focus on execution and the disaggregation of services that brokers provide. We’re seeing that clients are more effectively disaggregating certain things.”

Also in the background, another motivator for outsourced brokerage is continued cost control leading to the selection of providers of back- and middle-office services.

“We often bring together third-party providers and best-pricing arrangements for clients, and that’s something we’re seeing an increasing interest in. If you look at—certainly there will always be in the hedge fund industry [institutions] who have traditionally outsourced administration and accounting, but now are getting into the middle- and back-office space. Now, you’re seeing more hedge funds that come to Australia from Europe or Asia that are seeking help on the tax side due to changes in government regulation. The tax regulations have changed for the better in that there is more clarity provided in terms of the tax treatment of offshore funds. The actual rules have not been published yet, but we do have guidelines.”

BTIG has been increasing its Australia staff with three new personnel hires in the last six months, including the appointment of Sam Willis as a senior trader on the institutional sales desk. But Brech cautions that even as the market drives outsourced and automated solutions, technology should not replace risk management processes driven by people.

“More automating is definitely beginning to happen, but I’m always a bit concerned about that,” he says. “Automation provides people with an excuse to not use their brains and doing things by process. Increasingly, people [are] using systems for compliance and risk management, and you have to because the risks are too complex to do otherwise. … But it’s not a substitute for people’s care and attention. They’re there to help you, not to take responsibility away from you.”

Brech pointed to systems that filter trades to fit with mandate, but notes that individual securities sometimes cross industry groups and that sometimes trading limits can be breached.

“You can program systems to act as filters and watchdogs, but again, some of these things aren’t black and white,” he says. “There are always grey areas.”

(RA)

If you have any comments about this story or news tips, contact Christopher Gohlke in New York at cgohlke@globalcustodian.com or Janet Du Chenne in London at jduchenne@globalcustodian.com.