(Bloomberg) — BestEx Research Group LLC, which operates a trading platform driven by algorithms, is offering an electronic tool to banks so they can build their own algos without having to write the code themselves.
The technology firm’s new tool, Strategy Studio, gives buy-side clients and brokers the ability to build algos, helping cut costs and time, said Hitesh Mittal, BestEx’s founder and chief executive officer. Each algo can be matched to a bank or broker-dealer’s trading objectives.
“In the next decade I think banks are going to be buyers rather than builders in trading,” Mittal said in an interview.
Commissions for algo trading are expected to increase to $34 billion next year, according to researcher Chartis, with Wall Street trading more and more asset classes, including foreign exchange, fixed income and options, algorithmically.
BestEx, based in Stamford, Connecticut, is targeting its new product to electronic-trading units at banks that serve clients in equities, futures and fixed-income markets. It has five financial firms, including Bank of Nova Scotia, currently using the new software, and two additional top-tier banks signed up for futures trading, Mittal said. Over the next two years, BestEx intends to persuade at least 10 banks to build their custom offerings on top of the firm’s existing algo-management system.
Banks are setting aside hundreds of millions of dollars to build trading platforms to give clients fast, efficient technology. Goldman Sachs Group Inc., Morgan Stanley and other Wall Street giants pulled in $29 billion in trading revenue in the second quarter, a 21% increase that exceeded analysts’ estimates, with JPMorgan Chase & Co. leading the pack.
BestEx said it’s offering its algo-trading product at a lower cost than it would take banks to build their own offerings internally. The firm’s one-year subscription will cost an average of $1 million a year, depending on the size and complexity of the bank, Mittal said.
“Even though banks have the money, it’s hard to innovate at larger corporations, so we believe the next generation of algorithmic trading will come from independent firms like ours with more flexibility,” he said.
Founded in 2017, BestEx developed a cloud-based platform that offers trading for equities, futures and foreign exchange. Last year, it launched a futures algorithm, which aims to cut transaction costs through a model that factors in volatility, volume, spreads and other variables across exchanges.
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