Why Agency Trading?

How it compares to other trade execution models

When it comes to executing trades in listed securities, the route you choose to market matters. In this episode of Banking & Markets Explains, Annabel Massey, Global Equity Sales Trader at Northern Trust, explores the fundamentals of Agency Trading - a model that prioritizes access to liquidity, transparency and alignment with client interests.

Annabel breaks down how agency trading compares to other execution models, and why it’s gaining traction in today’s regulatory and operational landscape.

The choice of execution route to market for listed securities needs careful thought and consideration.

Let’s look at Agency Trading and consider its relevance to Asset Managers as opposed to other trade execution models. For example, trading on risk also known as principal trading or market making. This risk model differs from agency trading in that the market maker fulfils the client’s order using the firm’s own capital and risk, effectively taking their own position. Agency brokers can source liquidity and prices through market makers.

However, for asset managers and asset owners, using an agency broker – such as Northern Trust – can bring a number of key benefits.

Agency firms act only on explicit instruction from a client and generate revenue in the form of commission.

Why is this important - for Asset Managers and Asset Owners?

1. Conflicts – Agency brokers are remunerated by executing client orders only and don’t have to consider any risk positions, because they do not trade on a proprietary basis. Trades are executed in the best interest of the client and as such the client comes first every time. They are seen as an extension of the Asset Manager rather than opposed.

2. Access to Liquidity – Agency brokers have access to a vast array of liquidity including natural crossing, dark pools, lit markets, and Multilateral Trading Facilities, as well as Systematic Internalisers. This is beneficial for asset managers and asset owners, because they have more options to trade at the best possible price, in the largest available quantity of shares.

3. Best Execution & Transaction Cost Analysis/TCA - Agency brokers provide a fully transparent execution process and are measured by Transaction Cost Analysis, giving an empirical overview of performance.

4. Protection of confidential information – When executing customer orders, here at Northern Trust we face off to the market as Northern Trust, ensuring anonymity, maintaining client confidentiality and mitigating any information leakage that could impact performance.

Identifying and mitigating conflicts of interest is a fundamental ongoing regulatory obligation of asset managers and asset owners, for themselves and on behalf of the clients for whom they manage assets.

Making good choices when selecting execution counterparts can be a key part of this mitigation.

To understand more about Northern Trust’s agency only model, please contact us.

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Meet Your Expert

Annabel Massey

Annabel Massey is a Global Equity Sales Trader based in Northern Trust’s London office, serving our global institutional clients. Annabel joined Northern Trust in 2022 following four years at Liquidnet.

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