February 11, 2021 | Stamford, CT — Competitive pressures and increasingly complex markets are driving many institutional investors to concentrate their attention and resources on the things they do best, while looking for opportunities to outsource “non-core” activities. This effort is causing some buy-side firms to contemplate a previously unthinkable option: outsourcing their trading desks. 

While fewer than one-in-10 institutional investors currently outsource their trading desks, one third of the investors participating in a recent study by Greenwich Associates see outsourced trading desks as a good solution to help buy-side firms manage their trading flow and achieve best execution. 

“As more buy-side firms realize that they don’t have the resources to cover every aspect of execution, clearing, settlement, and regulation more of these firms will consider whether it makes sense to outsource their trading desks and reallocate resources to their areas of expertise,” says Shane Swanson, Senior Analyst for Greenwich Associates Market Structure & Technology, and author of The Outsourced Trading Evolution Continues.

An Attractive Solution Across Asset Classes
Although relatively few institutional investors have outsourced their trading desks to date, buy-side firms are watching the evolution of the practice closely and developing a more sophisticated understanding of what it entails. 

Last year, nearly half of the participants in the annual Greenwich Associates study stated that outsourced trading desks were just like other brokers. That share dropped to just 27% in the most recent study as buy-side firms took a closer look at how outsourced trading desks operate. 

Fixed income also represents an important potential growth area. The electronification of the corporate bond market over the past decade, along with the regulatory focus on U.S. Treasury trading, has created both opportunities and complexities for fixed-income investors. 

“For firms without the resources to either take advantage of the opportunities or to navigate the complexities, outsourced trading for fixed income could also prove an attractive solution,” says Shane Swanson.