Since its launch two years ago by a consortium of four investment banks – Citi, Credit Suisse, Dresdner Kleinwort and Merrill Lynch – the number of the global platform’s users has almost quadrupled to 242, including 150 sell-side firms, leading hedge funds and traditional asset managers. Approximately 50% of users are based in Europe, 25% in the US, and 25% in Japan and the rest of Asia.
The system enables users to send and receive trading ideas and to analyse and rank the performance of those who send them. The system, which only allows ideas to be sent to parties that agree to the exchange, has become a useful tool for buy-side clients to help measure the value of this traditional brokerage service.
Measuring value
"One of the things we see is that some buy-side firms are putting real money behind trade ideas in terms of where their commissions go," says Simon Tizard, executive director of Trade Ideas. "Typically a hedge fund or asset manager using our system allocates as much as 25% of its commissions to trade ideas, while for some the figure is 100%, which suggests that they don’t value any other service from brokers."
Buy-side institutions are also discovering that the tool’s usefulness in monitoring and quantifying the performance of their brokers’ ideas can just as easily be used to assess the performance of their own teams. Much of the growth in new clients in 2007 has come from buy-side firms as opposed to the sell side in 2006.
One of the platform’s most useful features turns out to be its ability to allow buy-side firms to limit the number of trade ideas that they are willing to receive from particular sell-side institutions or salesmen. According to Trade Ideas, the more a buy-side firms restricts the number of trade ideas it is willing to receive, the better the performance of the ideas they do receive turns out to be. That relationship, however, has not stopped the number of ideas being sent across the system from increasing 233% since the end of 2006 to more than 72,500 so far this year.