Adventâs analysis outlines issues that are currently top-of-mind among buyside asset managers:
1. Corporate Actions Processing â Corporate Actions processing is one of the least automated areas in the securities industry, and is characterized by excessive error, delays and repetitive work. This translates into increased operational and compliance risks as firms attempt to reconcile and accurately value their assets when market-moving news becomes available. Although progress has been made, with raw data being made available in real time, buyside managers still struggle to integrate this data into their systems and to collect all of the data elements they need to run their business. In many cases, buyside managers are still dependant on receiving faxes for notifications and on ad hoc manual research to collect critical information such as cost basis changes and taxability status.
2. Algorithmic Trading â The buyside is adopting algorithmic and other alternative trading methods to reduce trading costs, assist in implementing specific trading strategies, and allow traders to focus their time on the most difficult orders. Automation and integration is critical to accommodating the high transaction and rapid execution requirements of algorithmic trading. Buyside managers are seeking turnkey solutions and industry standards that enable them to connect with the full spectrum of traditional sellside and alternative trading systems, so that they have the greatest choice of strategies and execution destinations.
3. Electronic Fixed Income Trading â Order handling and execution options in fixed income markets are immature relative to the efficiencies and liquidity already available in the equity markets. In many cases, buyside fixed income traders still create paper trade tickets and phone in orders to individual brokers, thereby perpetuating manual processes, human error, and market inefficiency. However, larger buyside fixed income managers are increasingly seeking electronic order management, integration with their brokers, and more options for liquidity. In addition, firms are seeking to manage their fixed income instruments with the same systems and processes they use for equities.
4. Separately Managed Accounts â The tax advantages, transparency and professional expertise offered to investors through Separately Managed Accounts make them an increasingly attractive investment option for retail investors. For buyside managers, separate accounts represent a high volume but low margin opportunity to grow assets. However, for most buyside managers, their separate accounts practice is their least integrated from a systems perspective and most risk-prone from a compliance perspective because they are required to re-key trades into the proprietary and closed systems of the broker/dealers who sponsor the separate account programs. These inefficiencies ultimately add to the cost of delivering the product to retail clients, and cause some managers to avoid growing or entering the business.
"STP has been the industryâs goal for a long time. We wanted to share the status of STP from the perspective of the buyside, and raise awareness about the work that still needs to be done to get us there," said Will Clemens, vice president of Adventâs Straight Through Processing product line. "Weâve seen great progress in manager-to-custodian reconciliation, so there is precedent for the industry attaining straight-through-processing for discrete functions. With increased attention from the buyside, sellside, custody and vendor communities, we will attain greater operating efficiency, lower costs, and reduce compliance and trade settlement risk."