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Market Volatility And MiFID II Reform Are Driving European Buy-Side Firms To Adjust Trading Strategies, Says TABB - Fifth Annual European Equity Trading Study Examines How Core Brokers Are Under Pressure - Rival Brokers Eager To Gain Market Share By Offering Innovative Algorithms, Improved Execution, Added Value And Diversification Of Services

Date 15/12/2011

Hit by the growing political and economic crisis racing  across Europe and dealing with sustained market volatility and impending MiFID II regulation reform, as many as 75% of all European equity buy-side traders say they are adjusting their trading strategies. With performance and services from bulge-bracket core brokers under pressure, rival brokers are eager to step forward and grab market share.   

 According to Rebecca Healey, senior research analyst in London and author of “European Equity Trading 2011-2012: Looking for Allies in the Face of Adversity,” which is TABB’s 5th annual European benchmark research study, over 50% of the buy side say they have already switched their top algorithm provider in 2011 in a hunt for improved performance from their bulge-bracket core brokers, themselves facing austerity measures and dilution of the services they offer. “This is driving buy-side traders towards more nimble brokers offering innovative algo products, improved execution performance, added value and local services, especially in small and mid-cap names.” 

The 42-page study with 48 exhibits, which includes a foreword by Larry Tabb, founder and CEO at the London- and New York-based capital markets strategic advisory and research firm, is the result of analysing detailed interviews during the autumn of 2011 with 60 European equity desks at long-only buy-side firms with €12.3 trillion assets under management (AUM).

The study, which is previewed in a TabbFORUM video interview with Healey (also available at, examines MiFID II, the impact of volatility on trading behaviour and the fate of broker crossing networks (BCNs), multi-lateral trading facilities (MTFs) and organized trading facilities (OTFs). In addition, it looks at the top brokers according to overall and algorithmic commissions and the reasons why the buy side trades with those firms. It also includes the latest trends in order flow allocation to sales traders, program desks, algorithms and crossing networks; commission rates across those channels; the move away from risk trading and growth of order flow executed in the dark; and the shift to European emerging markets.

As Healey explains, trading volatility has reduced the buy side’s appetite for risk from an investor and capital commitment perspective.  “With less to share, 56% say they are reassessing their broker lists, forced to manage their broker relationships more effectively to maintain service levels. The research data speaks loud and clear.” Specifically, she says:

  • 54% rate execution performance as a key factor in selecting a core broker
  • Nearly half now use transaction cost analysis (TCA) and incorporate smart-order routers’ (SOR) venue analysis to measure execution performance
  • 56% route over 10% of their order flow into the dark
  • Over 60% want no further integration between cash and electronic trading desks.

“Despite difficult market conditions, their use of direct market access (DMA) and algos has risen this year, expected to continue in 2012, with alpha preservation the buy-side trader’s new mantra.”

With slowing fund flows, reduced commissions and a persistent shift away from developed markets as emerging markets are viewed as a more reliable source of alpha, says Healey, “buy-side traders are compelled to change the rules of engagement and they are unanimous on one issue – freedom of choice.   Multifarious trading methods will ensure that MiFID’s attempts to impose a ‘one-size-fits-all’ will not work. Differences in investment ethos, stocks and sectors demand a system flexible enough to adapt in today’s markets. Regulators and politicians have failed to restore confidence. As a result, in the face of adversity, the buy side is in search of allies and it will be consequential to learn who is able to rise to that challenge in 2012.”

The study is available for download by TABB Group Research Alliance Equities clients and all pre-qualified media at

For an executive summary or to purchase the report, visit or write to