UPDATE
TECHNOLOGY
Buy-side bonuses shrink as budgets focus on technology
I
nstitutional buy-side traders
could see a drop in compensa-
tion and bonuses in 2018 as trading
desk budgets instead pivot towards
investments in technology, accord-
ing to a new research report.
Greenwich Associates found that
with budgets expected to remain
relatively flat at $17.3 billion this
year, buy-side firms are planning to
spend less on trader remuneration
in favour of technology outlays.
Asset management firms spent
nearly 70% of trading desk budgets
on compensation and 30% on
technology in 2015, but by 2017
the allocation had changed to
60% on compensation and 40% of
technology.
The research found the trend is
more prominent on bond trading
desks, with compensation spending
between 2015 and 2017 falling from
70% to 59%, compared to equities
counterparts where it dropped
from 70% to 64%.
Kevin McPartland, head of
Greenwich Associates market
structure and technology research,
and co-author of the report, said
that while the shift is a secular
trend it is, in part, due to the effects
of MiFID II’s research and trans-
parency requirements which came
into effect on 3 January this year.
With the introduction of the new
regulatory regime containing a
high degree of technology-related
oversight, the report stated that
post-MiFID II more money will
continue to be allocated to technol-
ogy at the expense of trader bonus
pools.
Speaking to The TRADE,
McPartland highlighted that varied
trading skill sets will become more
important as the trend continues,
although it is unlikely that head-
counts on buy-side trading desks
will decrease.
“We do not expect to see trading
desks shrink, but instead to see a
continued shift in the skill sets of
successful traders,” he said. “Those
that understand data, analytics and
the value they bring to the trading
process will ultimately come out
ahead.”
Fixed income boost
Greenwich found that the average
reported trading desk budget
increased 0.52% year-on-year in
fixed income, but decreased 1.57%
in equities.
Over the past few years equity
desks have cut costs to balance the
low volatility environment, while
fixed income desks have boosted
spending in talent and enhance-
ments to technology systems
and infrastructures as electronic
bond trading continues to grow
in popularity and efficacy.
Market data terminals such as
those provided by Bloomberg
continue to be the largest
technological cost for trading
desks, shortly followed by order
management systems (OMS).
Combined, both services make
up half of the buy-side technol-
ogy budget in 2018, according to
the research.
Tools including transaction
cost analysis (TCA) and risk/
portfolio analytics have seen a
greater allocation of budgets
since 2015, and as MiFID II
makes a global footprint, that
surge is expected to continue.
The research concluded that
head traders at asset man-
agement firms will be able to
justify the changes to budgets by
increasing the value they bring to
underlying funds.
Issue 55 // TheTradeNews.com // 11