Fireside Friday with… Northern Trust’s Amy Thorne

As featured in The TRADE

The TRADE sits down with the head of integrated trading solutions for EMEA at Northern Trust, Amy Thorne, to explore what is driving change in the outsourced trading sphere, the ever-relevant T+1 debate, asset class diversification, and the evolving provider landscape.

What are the prominent trends are you seeing in the outsourced trading space?

There has been a shift in the size and scale in the types of managers that we’re talking to. My new favourite saying is that I don’t think this is a recessionary product any longer, but rather a future state. The way that people are thinking about it has changed dramatically over the last couple of years and a lot of that is driven through how customisable the product is through the whole life cycle of trading. Obviously, execution is a key piece of it, but just looking at all the different parts and how that can come under one commission rate is completely different. We did a survey on about 300 global asset managers and one of the main themes that came out of that was around outsourcing. Around 30% of them said that they would look at outsourcing trading, which demonstrates how much momentum there is in this space. It’s driving that capital light variable cost operating model that you can no longer ignore.

The other really key area for us as a product has been fixed income. We’ve seen a 98% growth in the last three years in our fixed income space and we actually launched a fixed income desk from Sydney in September. That is bolstering the 24/6 offering that we have around that asset class. It helps to have people on the ground that can help support firms based in the UK or in the US from that perspective. Another factor that’s key and won’t be that much of a surprise is the trading technology and infrastructure itself. It’s critical that you remain on top of that and it’s really expensive. If you can leverage somebody else’s expertise and infrastructure from that perspective it is instant cost saving.

What is driving these trends on the client side?

A lot of it goes back to pressure on managers. Everyone knows that there are costs and performance pressures, but it comes down to where can you gain operational efficiencies, regulatory reporting help or instant access to new products – whether it’s a different asset class or region. Co-sourcing in particular has been a big theme this year. The expense of setting up in a new market for a new product is high, you’ve got to get through a hiring process and everyone knows that that alone can take months. We’ve seen quite a few clients diversify into different asset classes over the last 12-18 months with interest rates changing and things like that. There’s also access to liquidity which is becoming more and more difficult. We’ve now got more than 500 different brokers for equities and fixed income.

T+1 was also a really big driver for us – we’ve seen quite a few managers who were looking to solve for different positions around that. Northern Trust has got offices in Chicago, New York, London and Sydney covering different asset classes and from that side of it, you’ve got the security. To some extent we’ve seen quite a lot of managers look at us for BCP purposes. They’ll have a line open and they have the infrastructure there but if something was disastrously to go wrong, whether it’s on a regional basis or macro or something internal they’ve got us as a backup.

What is driving change in the outsourced trading provider landscape?

We’ve noticed quite a lot of M&A activity. The underlying aim of that is achieving scalability of growth, access to liquidity, the governance structure, and basically whole product. The industry is really viewing outsourced trading as a high quality product now and with that comes a really high standard, high expectations of what you can deliver. Execution is key but it’s the scalability, the operational efficiencies, the support around regulatory reporting, the data analytics, the number of broker and venues that you can get to, and the advanced technology that’s wrapped around it.

Where the competitive landscape side of it is growing it’s great because it’s giving more optionality to everyone, it’s validating what we’ve been doing for a really long time now. If you’re active or passive and you’re looking at it from a fully outsourcing perspective or from a co-sourcing perspective, we see it as the future and it’s going to become a really imperative part of your operating model regardless of who it is. There are too many pros now for it to be ignored.

What would you say to those who remain anti-outsourced trading?

We always talk about the journey. It’s got to be the right time. There are going to be certain trigger points, whether that’s a new member on your C-Suite or additional cost pressures or access to liquidity or a new asset class or market. There are so many individual trigger points that happen at all of these firms at different times. This is becoming increasingly difficult to ignore and avoid. The route that we take is it’s a partnership for us - it’s not about taking jobs.

We have some clients who were still doing the trading themselves and their response has been ‘I can go back to doing what I’m meant to be doing, which is picking stocks, not deciding how to trade them’. That helps bolster their infrastructure too. We’re at a really exciting point in the life cycle of outsource trading, there’s massive momentum around it. You can’t ignore it, but also don’t be afraid of it. It’s not about putting people out of work, it’s about creating opportunity.

Meet Your Expert

Amy Thorne

Amy leads the Integrated Trading Solutions (ITS) team, Northern Trust’s institutional outsourced brokerage business in the Europe, Middle East and Africa region.

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