Whether it’s algorithmic or block trading, competition is always fierce as Wall Street brokers work hard to earn the buyside’s precious order flow.
But how do firms know where they stand? DTCC Data Products is offering a new product to brokers that benchmarks where they rank in equity trading volume for single stocks.
The benchmarking service is based on NSCC clearing data and allows a broker to gauge its market share in a particular stock on a daily basis from a number of different perspectives. This is particularly valuable in a fragmented market where equities trading in the U.S. is dispersed among dozens of exchanges and execution venues, making it difficult for clients to benchmark their overall activity.
Who’s the Axe?
The new service not only gives a broker a picture of where it stands against its peers per trading session, but also how it stacks up against the top 10 most active firms in a particular stock.
In addition, a firm can benchmark itself against the entire market and all the firms that traded a stock on a given day. There must be at least five firms trading the stock that day to be included in the data. The service is 100% anonymous – only the subscribing firm knows where it stands against an unnamed universe of brokers.
The real value is that it gives a firm the ability to uncover trends in market share over a period of time, which could influence a firm’s strategic approach, according to Matthew Bergerman, Director, DTCC Data Products.
“This product is really about understanding the competition in each stock a firm trades,” Bergerman said. “We provide 30 months of history, so clients can also see how their business has trended over time.”
From a business perspective, the benchmarking service provides a check and balance: It allows a trading desk to demonstrate to management how well it is doing— and the data is based on actual trades, not a subjective client survey. Similarly, the service is also a good reference point for management to verify performance, Bergerman said.
Creating Equity Benchmarking
There was some complexity to creating the product. Experts from DTCC’s Equity Clearing Services were called in and played an active role in its development. Their first hurdle was capturing the right data, as well as ensuring its accuracy.
DTCC collects a tremendous amount of data on every trade and it was important to differentiate between clearing and execution data, said Tom Sakaris, DTCC Managing Director and General Manager of Equity Clearing Services. “Data isn’t always what it appears to be, and there is a lot of nuance to the different types of data,” he explained.
Additionally, the data within the benchmarking service needed to be generic enough that clients couldn’t glean additional information about the marketplace or other clients. Ensuring anonymity for all participants is important, Sakaris added.
Based on feedback from clients, Sakaris said the benchmarking service appears to be filling a void in the marketplace that brokerage firms cannot find elsewhere.
Getting the Service
Trades from the previous day are sent from DTCC’s systems to a big data platform, he said. Here, the data is reformatted and sent to subscribers as a data feed through an automated process at 3 a.m. EST. This gives clients the ability to create their own reports.
The benchmarking product is a premium service that is separate from a firm’s NSCC membership. It is available to all NSCC members. Bergerman said it takes about one month to onboard a client, from finalizing the contracts to establishing the necessary connectivity.
The service has other uses for a firm beyond simply knowing where it ranks trading a stock—uses that could generate revenue. For example, the equity sales team could market to clients their desk’s high trading volume in either a single stock or a sector of the market. In addition, top trading firms in a name would have a strong argument to participate in an issuer’s secondary offering. The metrics could also be used by investment bankers in the creation of a pitch book, Bergerman added.
Although the product is new, interest is strong: The first client – a global investment bank – signed on in October, Bergerman said, and began receiving the service that same month.
He pointed out that the benchmarking product was developed with the help of brokerage clients. Firms looked at the raw data that DTCC could provide. They took an interest and offered their insights into how the product was developed, he said.