Linear Investments, a leading introducing, multi-service provider, has announced that Paul Walker-Duncalf will join Richard Lilley as joint Managing Partner in running the firm’s outsourced trading business.
Walker-Duncalf was previously Global Head of Equity Trading at BlackRock and brings a wealth of buy-side expertise, having spent over 30 years with the firm and almost 25 years in senior trading positions at BlackRock and its predecessors Merrill Lynch Investment Managers and Mercury Asset Management.
“Paul’s appointment and his broad buy-side experience will serve us extremely well as we continue to grow our outsourced trading business. The buy-side is under enormous cost pressures due to increased regulatory and operational requirements on top of challenging market conditions. Many buy-side firms are seeking to control costs and are increasingly looking towards outsourced trading as a mechanism by which to achieve that,” said Richard Lilley.
“Outsourcing trading does not just bring about cost benefits, but improves the quality of execution which is absolutely critical. Utilising an outsourced trading desk can enable a manager to execute their trades on better terms than they might normally have if they conducted this function in-house. Furthermore, outsourced trading can cover all geographies and asset classes, and use best in breed technologies. Linear’s outsourced trading desk will also have no proprietary positions – again something that should provide peace of mind to fund managers. This service complements Linear’s holistic offering to clients which also includes execution, settlement, middle office and back office outsourcing and transaction cost analysis,” said Walker-Duncalf.
The shift towards outsourced trading has also been abetted by regulatory developments including the EU’s Markets in Financial Instruments Directive II (MiFID II) due to take effect in January 2018. MiFID II’s best execution provisions require firms to ensure they attain best execution for end investors. Managers must take into account price, costs and speed when executing an order. “Outsourced trading is exceptionally well-placed to help managers ensure compliance with the best execution provisions laid down by MiFID II. MiFID II is fast approaching and managers need to attain compliance. Outsourcing their trading is something they should be thinking about,” Lilley added.
The recent passage of the MiFID II Delegated Acts has also shed some light on the future of sell-side research. The Delegated Acts state that research purchased by the buy-side from the sell-side cannot be linked to transactional volumes or value. While Commission Sharing Agreements (CSAs) are still permitted under MiFID II, they will become operationally difficult. Nonetheless, Linear will continue to handle CSAs for its clients. The only way fund managers can obtain research is to pay for it themselves or have pre-funded separate research payment accounts, the budget of which must be agreed with clients beforehand.
“A number of managers are now electing to incur the financial hit and pay for research themselves given the operational complexities under MiFID II of running CSAs or having pre-paid research payment accounts. This is likely to result in more managers looking to outsource their trading to experienced providers such as Linear Investments” said Lilley.