The "arms race" for the fastest systems is no longer the key battle for financial traders to fight, according to high profile brokers and hedge funds.
Recent research by TABB shows that while automation in Europe is continuing to grow, speed is no longer the name of the game. Brokers and hedge funds agreed that it was more important for market participants to focus on "intelligent" strategies and better understanding of clients and the marketplace.
Brian Gallagher, managing director at Morgan Stanley, told delegates at this week's FIX Protocol EMEA Trading Conference: "IT has become a level playing field for many of the brokers, and most of them have good technology."
"There has been an arms race for the fastest technology. It's been valid, but now it's areas such as the execution quality, service and liquidity that are more vital," added Citi's EMEA head of electronic sales trading, Salvador Rodriguez. "Things have gone full circle."
To some extent, there had also been too much attention on technology at the expense of strategy, the participants said, during a panel session. Nick Nielsen, head of trading at Marshall Wace Asset Management, said: "Perhaps there has been an excess focus on infrastructure and IT, rather than intelligence."
Nielsen added: "There's a limit to how much people can spend on hardware and software. People get to a point where they don't have the granular intelligence to make the most of the speed of technology that they have."
The panel agreed with a statement by Rebecca Healey, a senior analyst at TABB Group, that the trading discussion had "not been about latency for some time now". She added that it was "more about being smarter than before".
Healey said that "fear of being restricted to the open markets" was "accelerating the need for a far greater level of sophistication in algorithmic performance to determine where and when to trade. Limiting your market impact can have a significant impact on the overall performance of a fund."
Brokers are responding to the buy-side demand, with nearly 70 percent of those in Europe focusing on producing "intelligent" algorithms in 2012, according to TABB research.
The panel said that computer-driven trading had taken a strong hold in their operations, but agreed that it would never completely dominate.
"Computers won't take over everything," said Nielsen. "People are still needed to study the market and implement responses to the data they see."
Rodriguez at Citi was asked whether clients would have to focus on high frequency trading in the future. He said: "If you want to interact with HFT, you can, if not it's also fine. The key for us is understanding the client and delivering a real choice of service."
Gallagher at Morgan Stanley agreed. "Clients can use what they want. It's not about better algos alone, it's about better practice and better strategies."
"Brokers and buy side alike are taking electronic trading to the next level. The greater regulation that comes down the pipe, the more the industry will evolve," said Healey. "It will be the smart guys - buy side and sell side - who move with the times. They will be the winners."