Stock market traders being replaced by computers, according to …
Some asset managers have decided to increase electronic trade and subsequently reduce the number of brokers they use. Photograph: Alex Domanski/Reuters
European equity investors placed more orders via computers than through flesh-and-blood traders for the first time last year, as new market rules drive more money managers to go high-tech and low-cost. Widespread regulatory changes designed to make trading safer, more transparent and better value have affected brokers and asset managers and revolutionised the way they interact.
As a result, electronic trading – 30 years ago the preserve of tech-savvy banks and hedge funds – has gradually spread across the industry in a trend that is set to pick up speed.
Last year, European investors put 51% of their orders through computers directly connected to the stock exchange or by using algorithms, or algos, to find a counterparty, a study by market consultants TABB showed. In 2012, the share was 46%.
The foreign exchange market has already embraced algo trading, which accounted for 68% of orders in 2013, Forex trading data showed.
Regulators would like more bond trading to go electronic as well, but progress there has been much slower.
The TABB study, of 58 fund managers controlling €14.6 trillion (£12tn) in assets, showed that a majority intended to funnel a greater chunk of their business through electronic “low-touch” channels, which can cut trade costs by two-thirds, from the “high-touch” route where trades are carried out by a person.
Some asset managers have decided to proactively increase that electronic trade and subsequently reduce the number of brokers they use, keeping them only to process large orders or trades in areas of the market where low liquidity makes trading more difficult, such as small companies.
Other funds may not want to increase their usage of electronic trading but find themselves forced to as brokers shut off services to smaller clients and focus on those that route more business through them, TABB said.
While traditionally preferred routes of execution vary by country, fund and manager, TABB said, the tendency to rely on human interaction to get trades done was especially strong among managers in continental Europe.
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Stock market traders being replaced by computers, according to …
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