Rise of Outsourced Trading

Banks seek outsourced trading to increase efficiency, reduce costs, and access new markets driven by technology, competition, and agility.

FREMONT, CA: Outsourced trading is gaining popularity among market participants. As a result, custodians and other service providers are investing more in outsourced trading offerings to meet the growing demand. These providers are promoting outsourced trading as a way to enhance operational and strategic efficiency, reduced costs, and create expansion opportunities.

Although outsourced trading has typically been more popular among hedge funds, there is now growing interest from traditional long-only buy-side firms. The new outsourced trading offering for buy-side institutions will provide customers with improved trading outcomes through automation, innovation, and a systematic workflow. Consumers will have access to services across the front, middle, and back office functions. The customers will be able to cut down their expenses on data, trading infrastructure, analytics, and reporting, along with all the functions that support trade execution. By using this service, they can redirect their investments towards their main strengths and activities that generate profits.

In February 2023, a clear agreement was made to acquire a third-party trading company, as reported by the industry publication. This move will enhance the company's presence as a separate outsourced trading provider and also broaden its existing outsourced trading services.

Northern trust capital markets have experienced substantial growth in its Integrated Trading Solutions business, which offers support to asset managers and hedge funds in reducing costs. The outsourced trading desk has become increasingly popular among asset managers, leading to the platform's size doubling over the past three years.

Northern trust capital markets division offers outsourced trading services for equities, fixed income, ETFs, and exchange-traded derivatives across the world. This integrated trading solutions platform is designed to help asset owners and managers manage risk and regulatory compliance, improve transparency, and increase operational efficiency while lowering costs.

The demand for outsourced trading services has grown as investment managers seek to reduce costs and cope with the growing complexity of markets. This demand can vary from outsourcing trading for a specific asset class or region to outsourcing an entire trading desk. The number of providers in the outsourced trading space has increased by over four times in the past five years, growing from fewer than 10 to more than 40 between 2018 and 2022.

The outsourced trading landscape is evolving rapidly as banks prepare for a new wave of interest. With the rise of new technologies and changing market dynamics, banks are seeking to leverage outsourced trading services to increase efficiency, reduce costs, and access new markets. While the trend towards outsourcing is not new, the current wave of interest is being driven by a confluence of factors, including greater agility and flexibility, increased competition, and the growing importance of technology in the trading process. As the industry continues to evolve, the financial sector will likely witness more banks turn to outsourced trading to stay ahead of the curve and remain competitive in an increasingly complex and challenging market.