Outsourcing Trading

Who, what & why now?

Capco
Originally published in the August | September 2020 issue

Outsourced trading demand is increasing as investment firms look to reduce costs, satisfy regulatory demands & expand into different markets. For those offering, it is an opportunity to gain extra revenue leveraging their existing platforms. In this paper, we share why a growing number of firms are looking to use and provide outsourced trading as a service, the key trends emerging, market offerings and providers, and ten takeaways from Capco’s experts.

What is outsourced trading?

Outsourced trading (OT) is when a firm provides trading services e.g. trade execution, research, middle office activities, access to international markets to other firms, such as investment managers and hedge funds. 

There are typically three main reasons why firms buy this service:

  1. Cost saving: due to higher trading costs and lower revenues, firms are using OT to reduce the typically high costs of trading (such as IT, personnel, etc.) as well as moving to a variable or on- demand cost model.
  2. Satisfy regulatory demands: OT providers can manage regularity requirements such as MiFID II. 
  3. Access to trade support: the access to 24-hour markets, a wide broker network and larger liquidity pool & access to international markets are all compelling reasons to use OT. 

On the other side of the coin, selling outsourced trading as a service provides scalable revenue, allowing providers to leverage existing infrastructure and connectivity, and creates more opportunities for cross-selling, giving OTs the ability to sell other products parts of the firm to fund managers.

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