An increasing number of asset managers are deciding that it's just not worth it to run a trading desk anymore, due to the increasing complexity and costs of the function.
Salaries, data feeds, technology, and increasing regulations, especially MiFID II increase costs as asset manager clients demand lower fees for their services.
As a result, some mid-market asset managers are outsourcing their trading to such firms as Northern Trust (NTRS +2.8%), Bank of New York Mellon's (BK +1.9%) Pershing subsidiary, and Jefferies Financial Group (JEF +3%).
Northern Trust is in talks with about 40 potential clients for its platform and Jefferies has gained more than 60 new clients since starting the business in June. Meanwhile, BNY Mellon's Pershing has attracted U.K. wealth managers willing to let someone else deal with the complexities of trading.
Consulting firm Opimas estimates that a fifth of investment managers overseeing over $50B will outsource at least some part of their trading by 2022.
The trend may continue to shrink the industry's pool of traders, which has already declined as a result of electronic trading.
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