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How Outsourced Trading Delivers Addition by Subtraction

By outsourcing their trading model, asset managers can add expertise, streamlined processes and improved technology.

Facing unprecedented operational pressures, many buy-side firms are at a crossroads. With margin pressure, growing competition, rapidly evolving technology, a remote work environment and increased regulations, many asset managers have been looking for ways to create efficiencies that can help to future-proof their operating models. As a result, an increasing number of firms are turning to outsourced capabilities, including trade execution. According to a recent Northern Trust survey of asset management firm leaders, 37% of respondents are considering outsourcing functions to meet their goals with 23% looking at outsourced trading. i

Yet some asset managers worry that outsourcing their trading operations could raise questions from clients regarding the lack of an internal trading desk. These managers worry about the perception that an operation without a trading desk is like a ship without a captain, which can be a misconception. Fully outsourcing the trade lifecycle to a capable provider can offer asset managers new ways to address the challenges facing them, thanks to gains in expertise, process and technology. Not only can a manager subtract certain costs by outsourcing their trading operation, but a capable provider can add the benefits of a larger toolset.

Acquiring greater expertise

Building an experienced and balanced in-house trading desk is extremely challenging for any firm, no matter its size. Getting the right mix of knowledge, geographic locations and experience can be onerous and difficult to achieve. Additionally, once built, managing the scale of these desks can become its own challenge as the level of assets at a firm change. High fixed costs including salary, overhead, technology and data licenses may demand a level of expenditure higher than the benefits they provide.

An outsourced provider will have a large, global trading desk stacked with wide-ranging expertise and skills that managers can tap into, including expertise in local/regional markets and numerous exchanges across asset classes. An outsourced trading desk can provide access to experienced traders with specialized experience trading unique or illiquid asset classes, as well as access to liquidity venues needed for successful execution in such markets. Additionally, as a firm scales up, an outsourced trading provider can often meet this scaled up demand seamlessly.

Beyond a trading desk with a deep bench and wide array of relationships, the outsourced provider can leverage the broader experience and expertise of their operations to get answers that many asset managers may not be able to access. For instance, for a firm entering markets in the APAC region for the first time, a global provider can provide expertise in local market trading and settlement to help with activities such as trade oversight and foreign exchange execution.

It is often incorrectly assumed that the elimination of the in-house trading desk means people will lose their jobs and the firm will lose expertise. This stigma is not necessarily true. Some staff can be redeployed within the firm to new functions that benefit from trading experience, such as trading and operations oversight roles. This is a plus for regulators who are looking for better risk control, and for asset owners and asset managers who seek increased transparency and governance. 

Building streamlined processes

The numerous processes and systems needed to support an in-house trading desk require significant time and expense. The maintenance of such processes also includes risk management, as they may be subject to audit and require substantial in-house expertise to provide assurance of compliance with regulatory guidelines and industry best practices. By switching to a fully outsourced trading desk, a firm may see multiple cost- and time-saving benefits.

As regulations across the globe continue to evolve and increase in complexity, updating and maintaining compliance processes becomes challenging. An experienced provider can help firms manage oversight, monitoring and reporting on trade activities to aid in their regulatory compliance responsibilities.  

By leveraging the additional capabilities of an outsourcing partner, firms can achieve a more efficient trade process. Leveraging services including foreign exchange, settlement management, firm-wide transaction cost analysis reporting and research tracking may add value to an asset manager’s bottom line. One of the biggest hurdles to operating a trading desk is the extensive infrastructure that quickly adds up on a balance sheet, including but not limited to: Bloomberg and SWIFT connectivity, trading systems and software, servers and data licensing in various jurisdictions.

Full outsourcing can streamline these cumbersome processes and potentially save money for the firm. For example, the outsourced trading provider can send the data for a completed trade to an asset manager’s custodians, whether separately managed or fund, and then oversee the settlement process while also leveraging their foreign exchange desk. Subsequently, this may result in the asset manager no longer being required to pay fees for SWIFT messages or other costs typically incurred in trade execution needing to account for certain trade matching and settlement capabilities. Outsourced traders can also offer analytics in order to encourage consistent feedback loops on trade management.

Upgrading technology

In a landscape of rapidly evolving technology, keeping up with the latest software, trading platforms, IT infrastructure and other tools needed to maintain a trading desk becomes more difficult and expensive each year. Maintaining resiliency in the face of technology issues is another key challenge for in-house trading desks. When working to prevent interruptions to trading operations, firms must retain redundant and expensive back-up programs.

Staying ahead of the curve to generate positive returns is daunting for any asset manager, making investment in technology a key advantage of fully outsourced trading. Since the fully outsourced provider prioritizes execution quality for its clients, they are directly incentivized to invest in cutting-edge technology solutions that meet the execution needs of clients. Fortunately for asset managers, the onus is on the outsourced provider to stay at the forefront of technological advancements, trends and upgrades in order to stay competitive.

Outsourcing is addition by subtraction

In an economy where interest rates are going up amid inflationary and recessionary pressures, asset managers may not be able to count on improving their margins by increasing their assets due to growing operational costs. The changing landscape has increased the likelihood that asset managers will consider outsourcing one or more functions, with 60% of respondents to the 2022 Northern Trust survey saying it’s more probable today that they will outsource an area of their business. ii

Beyond trading, an outsourced provider can offer front-, middle- and back-office solutions that can streamline processes, giving a manager more time to focus on decision making. The right outsourced trading provider can also facilitate access to new technologies, including cutting-edge data software and capabilities. For example, straight-through-processing architecture can integrate data flows through front-, middle- and back-office systems – reducing the need for manual intervention and creating greater operational efficiencies.

As outsourced trading becomes more mainstream, asset managers are beginning to realize the numerous advantages of outsourcing their trading execution to a capable provider. When the provider takes over the trading operation, it can assume many responsibilities that can help reduce costs, while enriching execution capabilities and resiliency. As a result, the firm sees greater efficiency, transparency and flexibility, giving managers more time to focus on strategy. It is easy to assume that a firm loses something by eliminating an in-house trading desk. However, by outsourcing trade execution, the firm could gain tremendous value through increased expertise, streamlined processes and improved technology.


i 2022 Northern Trust survey conducted by WBR Insights of 300 CEOs, CIOs, Directors of Operations and similar stakeholders from asset management firms in EMEA, APAC and North America with an AUM of $500B and below. Driving Growth in Asset Management: The Next Chapter (

ii 2022 survey conducted by WBR Insights of 300 CEOs, CIOs, Directors of Operations and similar stakeholders from asset management firms in EMEA, APAC and North America with an AUM of $500B and below. Driving Growth in Asset Management: The Next Chapter (


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Stephanie Farrell portrait

Stephanie Farrell

Head of Integrated Trading Solutions, Americas, Northern Trust
Stephanie manages interactions with existing and prospective clients by providing an ongoing level of engagement, including strategic client relationships, reviewing target operating models and managing the wider client servicing team.

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