FinanceTech has a piece questioning the overall value of broker algorithm offerings. It asks some great questions I’ve been asking myself for some time:

Countless reams of paper and miles of type have been expended on the profound effects of algorithms on market structure and trading styles. The focus predominantly has been on broker market share of algorithmic flow and trying to make sense of the seemingly endless array of new bells and whistles (primarily aimed at the buy side) that brokers and vendors constantly are churning out.

But how profitable has the algorithmic adventure been for brokers? Has investment in hiring quantitative mathematicians and building out distribution and sales networks been worth it? Or have algorithms become such a common feature in the trading landscape that it simply is unthinkable for any broker worth its salt not to offer them (and eat the cost) because that’s what clients want? And what effects has the rise of algorithms had on brokers’ internal organization?

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What seems certain is that no broker can be taken seriously today unless it at least offers the basic algorithms - volume weighted average price (VWAP), time weighted average price (TWAP), implementation shortfall and arrival price. It’s also clear that algorithms are more cost-effective for low-maintenance trades, and that has meant head-count shifts and reductions on sales desks. But the decision to offer a more complex and comprehensive suite of strategies is a much bigger dilemma.

Read it all, I think the jury is still out on algorithms from the sell side. It wouldn’t surprise me if they were ho-hum in 3 years time.