Outsourced trading continues to grow, with an increasing number of firms opting for the strategy to build out their operations.
Dean Gray, head of international outsourced trading, and Joram Siegel, head of fixed income outsourced trading at Jefferies discuss the evolving space, what makes their offering stand out, and what comes next.
What does the current landscape look like and where does Jefferies sit amongst the outsourced trading offerings?
Dean Gray: The outsourced trading landscape has evolved into a number of differentiated offerings, all customisable to the needs of the underlying client.
Larger players who can invest more and scale their businesses are dominating the space, enhancing the overall quality of the Outsourced Trading offering for our clients. Bigger providers are also able to attract tier-one talent to their teams which, subsequently, firms of all sizes have access to. For more sophisticated clients, affiliation to recognised brand names, like Jefferies, makes them more comfortable with outsourcing.
The desk is ring fenced within our prime services group of offerings, and that affiliation allows us to provide a number of ancillary services that increase our partnership with clients and aid their growth. These include financing, synthetics, capital introduction, trade reporting, portfolio accounting and commission management. That said, you do not need to use Jefferies as a prime broker to be a client of the outsourced trading desk – many are not.
While other participants have merged or excited the Outsourced Trading business, Jefferies has continued to invest, cementing its position as a market leader in the industry.
We have operational resilience. We’ve got robust service, technology and business continuity. Also, being part of a firm the size of Jefferies allows our outsourced trading offering to go well beyond just providing a better execution for our clients. We can give them a trading infrastructure above what others can offer.
What have been the catalysts for growth and how has outsourced trading been adopted globally? Why have we seen this growth?
DG: Outsourced trading has become increasingly utilised over the last decade. The growth of technology, and the growth of technology spend, has allowed the major players to expand their share of the market. I think Covid also helped drive some of the evolution, taking outsourced trading forward to its next chapter.
Different geographies are at varying stages in their adoption of outsourced trading. Many potential clients have already made the decision to outsource for a number of reasons, from reducing costs and improving market access, to cover in a specific region and asset class support, so it’s not always necessarily about trying to sell the concept of outsourced trading, instead you’re selling your specific offering.
Recent volatility and increased market volumes have proved challenging for many firms, which is where scalable outsourced trading solutions can really be of benefit. At Jefferies, our outsourced trading desk consists of dedicated traders, all of whom have a huge amount of experience from working on the buy side that can help clients navigate difficult markets. We understand exactly what clients’ needs are and where they’re coming from since we’ve sat in their seats for many years. Additionally, each client is allocated service representatives to support them operationally from onboarding through to trade settlement.
The industry continues to evolve. Lately, we have seen outsourced trading providers working alongside other institutional managers and bringing their desks in-house. The Jefferies model is perfectly suited to this, allowing firms to keep their access to the street whilst enjoying the benefits the Jefferies offering provides.
How is the Jefferies outsourced trading business structured?
DG: We have offices in the US, London and Hong Kong, so we can trade global markets. All of our clients get a point of contact in each region. There is a seamless transition of order flow.
As previously mentioned, our outsourced trading business is completely segregated from the rest of the Jefferies equity businesses. Any trades, any information that comes in is only ever known within the outsourced trading operation at Jefferies. That’s important to our clients. They also get the comfort that they’re affiliating themselves to a global, regulated brand. We are able to align ourselves closely with them, and that trust has really helped to drive the business.
We pride ourselves on the strength of our capabilities. The offering is well established, so clients and traders are supported by dedicated sales, specialist operations teams, and ongoing assistance throughout the whole process. Access to a robust trading infrastructure also improves the overall client experience.
What, if any, additional services do you offer clients aside from execution?
DG: There are a lot of perks that come with being part of a bigger organisation. Everything you would expect from a traditional buy side trader is something that we offer our clients here at Jefferies, as well as access to capital markets, research, corporate access, and prime brokerage services. We can also leverage Jefferies’ legal and compliance teams.
We sit within the wider information barriers of prime brokerage, which gives us access to some of their services too. What we say to clients is, when you come to Jefferies, you’re not just getting a flow trader, you’re not just getting an extension of your broker list, you’re getting two things in one. You’re getting the closest thing that I think you’ll find to a centralised buy side trading model, as well as the ability to leverage additional services, aligned to our clients’ investment processes.
What’s next for Jefferies’s outsourced trading business?
DG: Jefferies is able to significantly invest in both human capital and technology so we can stay at the forefront of the industry and provide a best-in-class offering. We’re projecting growth as we expand asset classes in each of our geographies. Jefferies are fully entrenched in outsourced trading, yet continue investing, ensuring we maintain our position as market leaders.
Joram Siegel: We’re planning to go live with our expansion into the fixed income space later this year. As the industry has evolved, much larger asset managers have started contemplating outsourcing for some or all of their trading. They tend to be multi-asset, so being able to offer a full suite of services has become increasingly important.
The idea has always been to take the outsourced trading framework in equities, and all the benefits that come with that, and customise it for the fixed income space. There are nuances between the asset classes, and having traders with the knowledge and relationships with the market who understand that is an important selling point.
