Refinitiv is executing on its strategy to significantly grow its presence in the buy-side arena through its recent acquisition and integration of AlphaDesk, according to Michael Chin, managing director and co-head of trading at Refinitiv.
Changing the revenue base
Refinitiv, which currently has revenues and a client base that is approximately 60% sell-side and 40% buy-side, is strategically seeking to flip these percentages, so that 60% of the business is buy-side based, he says.
A key part of this Refinitiv strategy is to create an end-to-end approach for the buy-side. “Clients are starting to move away from this whole best of breed approach, where they take an OMS from one place, do am EMS here, do data from another place, because clients are focused on a more seamless workflow,” says Chin. “They prefer today to deal with a single vendor for most things because it is simple for them. And then through that approach they have more leverage to lower their total cost of ownership.” Clients want a “one-stop-shop”, with a “seamless OMS to EMS to PMS solution,” he adds.
Another driver of the one-stop-shop strategy is the that “technology has advanced so much that OMSs are starting to become a lot more commoditized” says Chin. “So, what are going to be the differentiators? They are going to be what I’m talking about, tight seamless integration from pre-trade to using the OMS” for a wide variety of tasks, such as managing orders and undertaking risk management. Then, says Chin, firms want to move straight on to the EMS, and then to the analytics, which TCA tools provide. “All of these things together are really what solves solutions for the buy-side, and having this in a fully integrated workflow is a key now.” For firms, it’s hard to achieve this and manage this using a variety of point solutions from multiple vendors, he adds.
The AlphaDesk acquisition, announced in May of this year, seems to fit well within this strategic approach. The deal was the product of an 18-month partnership between the two organizations. According to Chin, the genesis of the partnership came from speaking with existing Eikon and REDI buy-side clients who were unhappy with their current OMS providers. These buy-side firms were finding the installed software they were working with less modern and flexible, as well as heavier. They were looking for an OMS and a PMS that is built on modern technology, is in the cloud, and is offered on a software-as-a-service (SaaS) basis, says Chin.
Refinitiv started recommending the AlphaDesk platform to clients, and then integrating the solution with its existing products, such as Eikon and REDI, via APIs. According to Chin, this resulted in clients having “a common data model as well as consistent, accurate data across both their OMS and PMS functions as well as flowing into their ready direct execution management systems. So, we got an entire data foundation into their process.” He adds, “We started doing connectivity, what we call staging, from Alphadesk into REDI so our client’s portfolio managers could tee up the trades and then send them STP into the EMS.”
Other areas of integration emerged, too. By the time of the acquisition, according to Chin, AlphaDesk and Refinitiv had over 20 common clients. Says Chin, “It was just starting to become very obvious that these guys are the right target for us to acquire.”
Looking into the future of the buy-side
So what other changes are afoot in the way the buy-side engages with its processes? Chin says he is investing heavily in real time trade analytics. “The traditional TCA is obsolete, it is after the fact,” says Chin. Proving that best execution or high quality execution has been achieved after the fact is “too late”, he argues. “What our clients want, and what we are delivering on and investing in, is to be able to make trading analytics a part of the entire workflow.” Buy-side clients would be able to use analytics pre-trade to make the best trading decisions, and also during trading to help make sure trading benchmarks are being hit. “You have to incorporate analytics at every stage of the trade process, not just post trade,” says Chin. “That’s a very important part of our overall buy-side strategy.”
The other part of Refinitiv’s buy-side strategy is concentrating on helping traders become more efficient, says Chin. He is focusing on “augmenting the human trader with trade automation tools, tools that can help them route orders on an automated basis to their brokers.” The solutions would mean traders wouldn’t have to touch smaller orders in liquid securities – these could be completed automatically in line with parameters set within the solution’s automation engine. This would enable traders to focus on larger, high value trades. Says Chin, “These are some of the things that are also important to this overall buy-side trading strategy that I’m executing on.”