Can Strained Broker-Dealer Relationships Be Repaired?
Repairing the Damage
How far has the relationship between the buy side and sell side deteriorated in recent years? Pretty far, according to Timothy M. Olsen, SVP and head trader for ICM Asset Management in Spokane, Wash. "The service that the sell side provides has been in decline for the last 10 years," he says. "This is partly because some buy side institutions want less interaction with the sell-side broker and partly because the sell-side firms have gotten smaller and do not provide the same amount of color about markets or orders when they are being worked."
While advances in technology have sped up trading, they also have damaged the relationship between the two sides of the deal, continues Olsen, who largely blames electronic trading and instant messaging programs. "These two new developments over the last 10 to 15 years have dramatically changed the relationship that the buy side and the sell side have had in a negative way."
Momentum's Nenner suggests technology has become a crutch for due diligence. "With the fragmentation of the markets and addition of dark pools, the trader has to understand what is available to him -- it's not feasible to know how every venue operates, how every broker works, how every dark pool and algorithm functions," Nenner acknowledges. "Unfortunately, people have become so used to tapping the keyboard and getting immediate gratification that they lose sight of the other requirements to executing the trade correctly."
For his part, Olympian Capital's Kaul expresses confidence in his dealings with his broker-dealer thanks to thorough due diligence. "We try to choose dealers whose interests align more with ours," he explains, adding that his fund aims to control as much of its own trading as possible. "Most of our trading is exchange-traded and we control the access ourselves, and we are very cautious about how we use algorithms. We try to have as much control as possible instead of outsourcing the critical aspects on the asset management and execution side."
As Momentum's Nenner puts it: Caveat emptor, or buyer beware.
Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio
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