The new structure in the US equities market has led to a stampede of brokers offering high-speed, high frequency trading systems, but the buyside continues to demand the personal touch.

Investment and asset managers want better customer relationship management from sellside brokers, along with a single point of contact. They also want better fail management, where brokers help their clients cope with trades that fail to settle on time, according to a report by data provider Z/Yen. Jeremy Smith, head of Z/Yen benchmarking, said the buyside was looking for customer relationship management. He said: "There is a lot of cash floating around that is going to go back into equities. The brokers with the best service will stand out." The survey, Operational Performance of Brokers - US Securities - 2008, was sponsored by 11 sellside brokers and interviewed 44 investment management companies. Of the 44 buyside firms surveyed, 42 said accessibility and consistency of client service was critical. A buyside investment manager said: "Today only three of our actively traded brokers have adopted a successful CRM model. Of those, one of them is only just implementing it. We see this as a key success factor to the successful operational running of a broker and a service differentiator." Z/Yen's report said brokers were not very good at communications between front and back office. One buyside respondent said that while some brokers exhibit a sufficient sense of urgency in response to problems, "communication lapses were noted between sales and operations desks at brokers". Not having a point of contact at a brokerage was another frequent complaint. Buyside clients want to be able to call one person at their brokerage firm who can answer all questions 24 hours a day. Some prefer this not be segmented by product or region; others want regional service. However, offering a single point of contact can be problematic for a broker. A front-office contact will be au fait with the client's front-end trading system, and perhaps allocations, but is unlikely to have detailed information about back-office procedures such as clearing and settlement. Rich Stein, global head of product services at Liquidnet, said: "Our members are having to do more with less, so we have to do more for them to compensate. It will be one of our biggest challenges this year. Fortunately, we have no plans to reduce staff and we think this is a great time to gain market share by exceeding expectations." Where brokers also fall down is in the reporting and management of "fails" or trade-processing mistakes, said the report. One buyside participant said: "We would like to receive daily fails reports from brokers. This file would encompass all fails across that one broker for any offices that trade with or cover us." Some brokers offer fail reporting, usually in the form of a daily spreadsheet. Liquidnet began offering a daily report in January 2007. Each morning, it automatically e-mails two reports to each client, one that identifies trades that have not been affirmed and the other flags trades that have failed. Stein said: "Buyside firms that do not affirm trades generally have a higher fail rate and face increased settlement cost." Liquidnet decided to focus on fail reporting, attacking the problem before it becomes a fail. Stein said: "In the life cycle of a trade there are many opportunities to communicate issues with our members, which helps to prevent problems." Agency broker Instinet self-clears, which gives it a greater element of control. Jonathan Kellner, president of Instinet North America, said: "But when a trade does not settle on time for whatever reason, our back office, which sits next to and works extremely closely with our front-office staff, will communicate early and often with the client and we'll make them whole. And at the end of the day, that's all most clients are looking for." Some of the respondents said they would adopt technology to address fail management, such as FailStation from technology provider Middle Office Solutions. Steven Greenfield, president and chief executive of Middle Office Solutions, said the larger the investment manager, the more data is contained in spreadsheets from custodians and brokers. He said: "None of this is standardised, and the investment manager is stuck in the middle trying to figure out how to fix and aggregate fails. As markets get busier, with more international markets and higher risks, this gets messier." Middle Office Solutions developed FailStation to address these issues, and Greenfield said he expects it to become an industry utility. FailStation aggregates failed trades and affirmations, normalising and standardising the data. This involves a manual load system where clients can download reports on to the FailStation system. There it is normalised and aggregated and sent back to the client. This is a web-based programme, according to Greenfield. FailStation is working with brokers and custodians to get the data sent via a direct feed. Greenfield said: "From a buyside perspective we are taking them from zero to 60 overnight."