You are here
State Street is building a business to provide outsourced trading
[NEW YORK] State Street wants to lend a hand to the growing number of money managers seeking to outsource some of their trading operations.
The bank is developing a business to handle trades for investment managers, according to Nadine Chakar, head of global markets at State Street.
The bank is negotiating with possible clients and aims to start offering the service in the first half of next year, she said.
"We went out to kick the tires with some of our clients and we were pleasantly surprised with the overwhelming response," Ms Chakar said in an interview. "We thought: We can help them generate a bit more operational alpha by taking a bit more of the trading off their hands."
It's part of a broader strategy to boost growth through new offerings as declining fee revenue and falling interest rates have pressured the industry. The Boston-based bank last year bought data and analytics provider Charles River Systems to accelerate an overhaul of technology operations, and it's been cutting costs to hit growth targets.
Ms Chakar said the technology the bank acquired when it bought Charles River will help it handle many trades and portfolios without necessarily having to hire more people.
"It's highly scalable mainly due to the automation we've introduced," she said. "Anybody that manages money internally would be a prime candidate."
State Street says it wants to help its biggest clients - often asset managers - become more efficient by helping them reduce spending on data, employees and technology.
The US$33 trillion custody bank joins companies including Northern Trust and Bank of New York Mellon that have developed platforms to take over trading for asset managers. Investment firms are under pressure to shrink trading desks as regulatory costs and passive investing put pressure on profits.
While outsourced trading isn't a new phenomenon - smaller, startup investors have outsourced trades for years - the service has gained popularity among money managers. Opimas, a consultancy, estimates that a fifth of investment managers overseeing more than US$50 billion will outsource at least part of their trading by 2022.
Northern Trust started offering an outsource service in 2017, while Bank of New York Mellon's subsidiary has said it's tapping into more UK wealth managers keen to offload trading.