Street Smarts: The Content Advantage, Adding Context to Trading Execution

April 29, 2016

The Content Advantage, Adding Context to Trading Execution is the third article installment of a four-part Brokerage: Analysis and Execution series that will explore the rise of electronic trading, the commoditization of execution and the future of Wall Street. Read the previous posts Rise of Trading and Equity Research and The Commoditization of Electronic Trading. Street Smarts insights are written by Blair Livingston, Chief Executive Officer and Founder, Street Contxt.

As execution became less valuable to the client, brokers sought to differentiate themselves by the additional analysis and ‘colour’ they provided in addition to their traditional trading role.

The Content Advantage

Traders began producing commentary about the names that they were active in. They began highlighting trading flows, buying activity, and general market activity. Sales people joined in to add their own thoughts and views to the firm’s research. The role of the desk strategist was created to address more short term commentary and events. Even research analysts began adding new services, such as videos, Q&A’s, and other new mediums of analysis. Email was the main mode of delivery for all this newly created commentary.

Lack of Intelligent Delivery Systems

Billions have been spent improving execution technology in the past few decades. Yet the communication issues that have evolved in parallel have not been addressed.Equity research and trading

Each brokerage could invest in their own trading tools that would directly and incrementally contribute to the bottom line – this was rather straightforward, as each firm competed independently.

However, on the communication side, in order to benefit from the network effect that communication tools rely on and can provide (witness the power that Bloomberg Chat has over the industry), they need to remain independent of any specific firm. In addition, they are often regarded as a utility and don’t contribute to the bottom line in an immediate and impactful way. Developing an in-house communication platform did not make sense to most brokerages. As a result all the newly created commentary was distributed using the most accessible communication medium on Wall Street, email.

As clients began relying on this commentary, they were forced to subscribe to almost every email distribution. No tools existed to facilitate their subscriptions and consumption which resulted in an overflowing inbox, as almost any buy side individual can attest to.

Today, the volume of this content is jaw-dropping. A bulge bracket firm that Street Contxt works with sends out between 100 – 120 million pieces of equity research every year. One firm, one asset class, one type of commentary. This volume does not include sales notes, trader commentary, content from desk analysts, macro economists, or any other asset class. Just equity research! There are likely billions of equity research emails being sent to clients every year. Only Equities. Only research.

Static Email Distribution Results in Missed Insights

As content became the ultimate differentiator and value add to clients, Brokerages have not developed the right communication tools. Using email as a distribution method made insight impossible. A high amount of human input was required to manage distributions and decide which content should be sent to which recipients. Using a static medium, such as email, to send commentary to clients added the extra burden of inbox management and resulted in limited content awareness. If the client’s sales person didn’t make them aware of specific commentary, it was unlikely they would find it.

The technology to deliver the right content to the right client, at the right time, and understand that client’s consumption over time was not available. Additionally, buy side clients hadn’t developed the right tools to help them manage the content that was being received across their firm, better discover unknown content, and measure what they were consuming and ensuring that they paid for it.

Much like electronic execution changed trading forever, electronic distribution is going to change content distribution forever.

Next, we will explore the Electronic Distribution-The Smart Future of Wall Street as the fourth part of our Brokerage: Analysis and Execution thought series.

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The Street Smarts insights are written by Blair Livingston, Chief Executive Officer and Founder, Street Contxt. Mr. Livingston has committed his expertise in market structure, financial technology, financial commentary and communication practices to shape a new, more effective capital markets system. Street Contxt helps to clarify an increasingly fragmented marketplace, connecting sell side content with the preferences of buy side participants. Connect with Blair Livingston on LinkedIn.