The Convergence of the Buy-Side and Sell-SideBYSHIHAB KHALIL - CEO ZAGTRADER

A simple definition of a Buy-Side and Sell-Side A firm that invests in securities for its clients (and possibly its own) is usually called a “Buy-Side”.

A firm that receives the orders from its clients and forwards them to execution is usually called a “Sell-Side” or a Broker. Sell-Side activities can involve brokering, dealing, advisory services, and investment research.

Examples of Both SidesBuy-Side

Asset Managemen

t

Hedge & Mutual Funds

Institutional Investors

Retail Investing

Sell-Side

Investment Banking

Brokerage

Prime Brokerage

Market Segment in Focus For the sake of this presentation, We will focus on the Buy-Sides that:

◦ Manage Clients’ Portfolios

◦ Trade Across Multiple Exchanges through multiple brokers

Discretionary vs Non-Discretionary

A Discretionary account allows the Portfolio Manager to manage the account and buy and sell securities without the client’s consent.

A Non-Discretionary account allows the Portfolio Manager to manage the account, only after the client provides directions. The portfolio manager can not make decisions without referring to the client for every transaction.

Buy Side Typical Transaction Workflow

Buy-Sides usually trade with multiple brokers for multiple markets. Buy-Sides can even trade with multiple brokers for the same market.

Current Challenges to Buy-Sides Buy Sides trade on:

◦ Multiple Exchanges◦ Through Multiple Brokers◦ Using many screens (Direct broker screens and

aggregating screens operating over routing networks)

Trading Teams gather all the trades in Spread Sheets and send them over to back-office / accounting at the end of the day.

Risk Management is in question.

Back Office and Operations are blind until end of day.

Corporate Actions pains are linearly correlated to the number of securities covered

The Sell-Side Process Flow Sell Sides are electronically connected to the exchanges they cover, and offer their clients various channels, such as Online, DMA via FIX Routing networks. Brokers are focused on their markets they cover only. They do not worry about other exchanges’ data and services.

There is one more category.. Prime Brokerage

What about the Financial Institutions that offer regional or global trading for their clients, act as brokers, but more function like a non-discretionary “buy-side”?

They are buy-sides from the order sending perspective.. But technologically dysfunctional brokers – since they do not offer electronic means to receive orders from their clients..

You do not have to be a member of an exchange to be labelled “Broker”. You can be a “Prime Broker”.

Major challenge facing Buy-Sides and Prime Brokerage

Now that we have established certain similarities between some Buy-Sides and Prime Brokers, the following are some of the serious issues:

MARKET (Expensive) DATA

Eliminate risk by deploying a sophisticated Order Management System and real-time integrated back-office, to achieve real-time risk management, you need to have real-time market data INTO the system.

How Big are the costs of data? Example: An institution wishing to trade on 10 exchanges..

◦ Obtain Data Feed pipe from a Feed Provider : $5,000 per month (on Avg)◦ $1500 per exchange per month for becoming a vendor of record / Distributor◦ Bandwidth to get the large data into the system◦ The IT infrastructure to support the incoming big-data◦ The IT staff that are needed to be on a higher level of sophistication

Direct Costs can exceed $250,000 per year In addition to cost of IT + Human Capital

What if you can out-source your problems? Focus on your own business Run a solid platform Let the data people send data to your end-users directly and on-demand Let the platform connect to Corporate Actions data providers and only receive data that matters to you

The Convergence of the Buy-Side and Sell-Side Prime Investment Banking

Global Brokerage Operation, offering Online, Mobile Apps, Direct Market Access (DMA) via Routing Networks, Cross Market Settlement, Multiple Asset Classes, Managed and Un-Managed Portfolios

ZagTrader Pioneered Solution Global Prime Brokerage is now a reality with ZagTrader’s Global Order Management Solutions, in partnership with various global data provides, all working together to provide this unique solution.

Global Integrated Platform.

Maintain Independence.

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