Outsourced Trading – Poised for Strong Growth in 2023

Executive Summary

We expect that 2023 will be a very strong year for outsourced trading, expanding 45% to reach US$1.7 billion. This growth will come mostly from larger asset managers seeking to outsource part of their trading activity and right-size their trading desks.
Some confusion regarding outsourced trading persists, with many asset managers not entirely sure what the terms means. Opimas defines it in qualitative terms – where an external trading desk is used largely in the same way as an internal desk, with the same level of integration and information sharing.

Broadly speaking, outsourced trading desks come from one of three groups:

  • Independents, including CF Global, Outset Global, and Tourmaline
  • Prime Brokers, including BTIG, Jefferies, and Jones Trading
  • Custodians such as Northern Trust or State Street

The pros and cons of each group are considered in this report.

About a dozen interviews were conducted with senior managers at asset managers who had already outsourced their trading. The key points from these interviews were:

  • The selection and decision-making process tends to be long and difficult, often lasting over a year.
  • There was concern about a negative reaction from public-sector funds.  In practice, nobody encountered any problems.
  • In terms of execution quality, the asset managers were surprisingly cavalier. Quite a few stated that this did not really matter that much.
  • In terms of cost reduction, views were mixed. Some felt they were generating considerable savings by outsourcing, while others reported that the cost savings were quite limited.

2023 should prove to be an exciting year for outsourced trading, one of the few bright spots in capital markets. We expect that new providers will enter the field, and we expect to see offerings emerge from large asset managers seeking to generate new sources of revenues.

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