TABB Says Buy Side Use of Algorithms Will Rise to 35% in 2011, on Par with High-Touch Sales Traders for the First Time

New Research Details Low-Touch Trading Trends in the US Equity Markets Based on Interviews with 123 US-based Asset Managers and Hedge Funds

NEW YORK & LONDON--(BUSINESS WIRE)-- With asset managers and hedge funds in the US accounting for nearly one third of the share volume traded in 2010, up sharply from a low of 25% in December 2008, the overall effect on the institutional equity brokerage industry is a wash: trading volume is down but not as much as the rest of the industry. Meanwhile, TABB Group, in a new research report published today, says that the use of low-touch algorithms will reach 35% in 2011, for the first time on par with high-touch sales traders.

The new report, “US Equity Trading 2010: Low-Touch Trends,” provides a capital markets industry update on low-touch trading trends in the US equity markets. Its co-authors, Cheyenne Morgan, research analyst, and Adam Sussman, director of research, analyzed data based on interviews with 123 head traders of US-based institutional equity management firms and head traders with aggregate assets under management (AuM) of $12.1 trillion and $182.1 billion, respectively.

A considerable portion of these discussions covered head traders’ opinions regarding the continued growth of low-touch trading, including trends in order allocation across high- and low-touch trading venues and selection criteria in algorithmic trading. The report also focuses on dark pools and crossing networks

According to Morgan, algorithms continue to be the stand-out winner amongst trading strategies, continuing to grow in importance and volume as traders turn to low-touch execution methodologies. “Competition for market share amongst the top algorithm providers is intense and while there is more competition then ever amongst the top five providers, the total number of participants TABB identifies is 13, all with strong positions, indicating there is a clear list of contenders in this space providing buy-side firms with more choices than ever” This, she adds, is occurring at a time that, although sales trading remains the dominant source of commission revenues, TABB believes algos will continue to gain ground.”

Addressing the hunt for liquidity, Morgan says that over the past two years, brokers have made great strides in connecting clients to their dark pools. “As the buy side connects to these pools, TABB expects volumes to grow both on an absolute basis as well as a percentage of overall volumes.”

The report is available for download by TABB Group Research Alliance Equity clients at https://www.tabbgroup.com/Login.aspx. For an executive summary or to purchase the report, visit http://www.tabbgroup.com or write to info@tabbgroup.com.

Other recent related TABB research includes: US Institutional Equity Trading 2009/10: Dark Pools, Transparency, and Consequences; Equity Trading in Transition: New Business Models for a Brave New World; US Prime Brokerage 2009: The Hedge Fund Perspective; (Hedge) Fund Administration: Selection Criteria for a New Market Reality; US Institutional Equity Trading 2009/10: Dark Pools, Transparency, and Consequences; and LiquidityMatrix™, a monthly compilation that provides liquidity and pricing information on US exchanges, ECNs, dark pools and crossing networks.

About TABB Group

TABB Group is the financial markets industry’s only research and strategic advisory firm focused exclusively on capital markets. Founded in 2003 and based on the proven interview-based research methodology of “first-person knowledge” developed by founder Larry Tabb, TABB Group analyzes and quantifies the investing value chain from the fiduciary, investment manager and broker, to exchange and custodian, helping senior business leaders gain a truer understanding of financial markets issues. For more information, visit www.tabbgroup.com. In January 2010, TABB Group launched TabbFORUM, www.tabbforum.com, the online community, now with nearly 4,000 capital markets members registered, drawn from the buy side and sell side firms, exchanges, regulatory agencies, academia and media, focusing on though leadership covering current industry-wide issues.

CONTACT:

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Martin Rabkin, 914-420-5739
mrabkin@martinrabkinink.com

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