Simple execution vs risk-taking
Rising competition in the programme trading arena has begun to change the balance between agency trading and risk trading. Agency business still controls a higher percentage, but risk trading has begun to rise.
Programme trading takes two basic forms. The first approach is for banks and brokers simply to execute trades on behalf of their clients, acting as their agents in the marketplace and turning over most or all of the price benefits to the clients in return for a commission for doing the deal.
Alternatively, they can leverage their balance sheets, taking bulk trades onto their own books - assuming the attendant market risk - in an attempt to extract more benefit from their dealing expertise. Returns of this sort often exceed the commission they command for what amounts to providing the client with immediate execution.
The directions investors take (and the margins that banks make) - either for agency or risk trading - depend on many factors, from the level of hard-to-source securities included in a package to the desire of the client to execute a programme trade at speed.