Although headcounts among institutional trading desks held steady from 2018 to 2019, a report from Greenwich Associates says it’s clear that increases in buy-side trading desk budgets are being driven by technology spending.
Average buy-side trading desk budgets increased a modest 4% last year in the US and Europe. According to data from Greenwich Associates, annual budgets average US$2.8m for fixed-income trading desks, US$1.8m for equity trading desks and US$1.6m for FX desks.
In general, desks trading less liquid asset classes allocate more to technology, with fixed-income trading desks devoting 41% of their total budget to technology, versus 36% in equity.
“This trend could indicate that when it comes to sourcing liquidity, the buy side finds that a marginal dollar spent on technology returns more than a marginal dollar spent on talent,” said Brad Tingley, Market Structure and Technology analyst at Greenwich Associates and author of the report, ‘Trends of Buy-Side Trading Desk Spending’.
Despite the growth of electronic trading and other technology tools, the Greenwich data shows that technology and automation continue to augment human traders rather than replace them. With the support and benefit of improved technology, 44% of buy-side traders are now active in multiple asset classes, and more than two-thirds trade multiple instrument types.
“Clearly, traders are seeing benefits from having more flexibility in how they achieve desired exposures and this flexibility has contributed to improved P&L performance,” added Tingley.
Market data terminals remain the largest technology expense on the trading desk, accounting for an average 35% share of total tech budget. Interestingly, order management systems (OMS) represent a smaller expense for trading desks today than in 2016, yet are more common now than before. The OMS/EMS vendor landscape has shifted dramatically over the last few years with users paying less for more functionality.
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