Trade Ideas Limited (TIL) announced today that its industry-wide platform for institutional brokerage firms and investors set new records in June 2008 for the volume of electronically transmitted trade ideas, the quantity of short ideas, and the number of new participating buy- and sell-side firms.
âThe record activity reflects continued strong growth for the value-added brokerage service in Europe, North America, and Asia; increased market volatility around the world; and participating brokers and investment managers responding to that,â said Simon Tizard, TILâs Executive Director.
During June 2008:
â¢ Volume of trade ideas electronically transmitted through the TILâs Repository and Distribution Centre (RDC) increased 300% year over year, to 20,898, beating the previous record of 19,238 set only two months ago.
â¢ Quantity of short ideas increased 629% year over year, to 8,081, or 39% of all new ideas, beating the previous record of 7,894, also established in April 2008.
â¢ Number of new participating buy- and sell-side firms grew 156% year over year, to 23, beating the previous record of 20 in January 2007.
During the first six months of 2008 compared to the year ago period, volume of trade ideas electronically transmitted increased 192%, to 96,899; the number of short ideas increased 403%, to 37,803; and new buy- and sell-side firms increased 25%, to 90.
At June 30, 2008, total volume of live and historical trade ideas in TILâs database had increased 274% year over year, to 208,531, and the total number of participating firms, climbed 67% year over year, to 355.
Of the 355 participating firms, approximately 150 are sell-side and the balance buy-side firms, according to youDevise Limited, which markets the Trade Ideas Monitor (TIM). TIM is the leading third-party alpha capture system for authoring trade ideas, which are sent and received through the TILâs RDC. Among sell-side firms, about 65 are national, 55 regional, and 20 international. Buy-side firms are split 50-50 between hedge funds and more traditional, long only money managers.
Approximately 50% of the participating firms are based in Europe, 25% in North America, and 25% in Asia. Year to date, approximately 53% of the ideas involve stocks traded on European exchanges, 25% on North American exchanges, 18% on Asian exchanges and 3% on exchanges in Africa, South America or the Middle East.
âWe expect usage to take off in North America and Asia,â said Colin Berthoud, Director of youDevise. âOver the last year, North American-based international brokers that use trade ideas in Europe have been importing the practice to the North American and Asian markets. Increasingly, we are seeing these brokers sensitizing their clients in the US, Hong Kong, Japan, Singapore, and India to the value of trade ideas.â
Mr. Berthoud said ideas are now being used in three distinct ways, influencing investment decisions on more than $130 billion in assets.
1. Quantitative, black box or statistically based hedge funds: Hedge funds with collective assets under management of more than $10 billion are using ideas as the major determinant of their trading, many without human intervention. These funds typically instruct brokers to send large amounts of ideas and may allocate as much as 100% of their commissions based on performance.
2. Specialist hedge funds: Hedge funds with collective AUM of more than $20 billion are using ideas to refine their broker lists to those that can produce alpha on a consistent basis. Typically, the funds trade all the ideas from their best performing brokers and allocate most of their commissions to them.
3. Larger asset managers: Hedge funds and long-only investment advisors with collective AUM of more than $100 billion are using ideas as input to their decision-making and to determine which brokers add value. These managers typically allocate 25%-50% of their commissions to brokers that send them ideas.
To facilitate quantitative trading, youDevise has enhanced the TIM to deliver ideas system to system, in XML or other formats. To facilitate more fundamental stock selection, the TIM now also enables managers to set more varied criteria. âWeâve engineered the TIM to automatically take these rules into account when brokers submit an idea to ensure the client receives only the kind of ideas it wants,â said Mr. Berthoud.