Jay Doherty
Principal, Consulting
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Cutter Associates is both a research consortium and global consultancy. Because of this, we can leverage our internal expertise at Cutter Consulting alongside our Cutter Research member perspectives to provide in-depth insights. Our consultants are specialists with deep industry knowledge and experience solving the most complex problems.
For this Cutter Consulting Perspective, we caught up with Jay Doherty, Principal, Front Office Consulting, to discuss the future of trading.
Scaling Trade Execution: Technology, Talent, and Outsourced Trading
Trading is undergoing a seismic shift. What was once a relationship-driven, manual process is now increasingly automated and data-driven, prompting firms to rethink how they trade.
In this Q&A with Jay Doherty, we highlight some changes we are witnessing among firms with respect to their trade execution.
Cutter Research: Trading seems to be undergoing a seismic shift. Talk about what’s changing today and the biggest drivers behind the transformation.
Jay: Automation, analytics, and selective outsourcing are three that come to mind ─ all of which can unlock meaningful competitive advantages.
Technical expertise and data analysis are now more valuable than broker relationships, while outsourced trading providers offer access, scale, and execution expertise at a lower cost.
Market data and trade analytics are now widely accessible, shifting traders’ roles from relying on exclusive information to using quantitative tools for execution, risk management, and analysis.
And with those drivers in mind, firms are realizing that change is necessary.
"Automation elevates the trader's function to one of oversight and strategy rather than routine execution."
Jay Doherty, Principal, Front Office Consulting
Cutter Research: For firms looking to make a change, what are some trends that you see in the market around technology?
Jay: For over two decades, traders have used an execution management system (EMS) for surgical order slicing and wave management, so while the use of the EMS is nothing new, the EMS itself does continue to evolve, now offering more sophisticated automation, better analytics, multi-asset class support, and open, modern architectures with better connectivity and API access. Over the last five to 10 years, the line between an EMS and an order management system (OMS) has become more blurred, with OMS vendors launching EMS-like functionality in their products and historical EMS vendors broadening their offering to support OMS activities.
The next evolutionary phase of the EMS will continue to reduce manual order-handling in other markets, such as fixed income. This is well underway, and we predict that innovation will come to other less liquid and niche areas of coverage.
And it’s worth noting that automation does not eliminate the need for human traders ─ it redefines their role. In fact, automation elevates the trader’s function to one of oversight and strategy rather than routine execution.
In practice, trading is so much more. It has become a critical component of the portfolio construction process by providing insights into expected implementation cost and strategy.
Cutter Research: What about outsourced trading? How can that option play a role?
Jay: Over the last five years, we’ve witnessed outsourced trading grow in adoption across the industry. While originally targeted at small or start-up funds and overnight desks for expanded regional coverage, during the last few years the AUM ceiling has really lifted. Now outsourced trading is being considered in larger funds that need to expand areas of specialization or want to offload the costs of commoditized execution so their internal trading teams can focus on higher-value activities. These activities include hard-to-trade names/markets and bringing their insights and expertise on trade implementation more deeply into the portfolio construction process with PMs.
We also see hybrid/co-sourcing models gaining traction, where firms retain complex or high-touch trading in house while outsourcing low-touch flows, asset classes, or trading on a regional basis.
Outsourced trading is also helping to drive innovation among EMS providers. For example, automated trading has been a focus for some providers, and a significant uptick in automated trading has occurred in the last five years, mainly because outsourced trading desks needed a way to keep up with the increase in flow during the COVID pandemic.
Cutter Research: Looking forward, what does the future of trading look like for the buy side?
Jay: Over the next five years, equity execution will become increasingly driven by AI-powered analytics capable of processing vast amounts of tick data, news, earnings commentary, and investor sentiment in real time. These capabilities will enhance systematic and algorithmic trading strategies by improving signal generation, execution timing, liquidity forecasting, and risk management. At the same time, market structure changes such as the expansion toward 23-5 trading will require firms to operate in a more continuous, globally connected market environment where automated decision-making and execution become essential. As a result, the trader’s role will evolve from primarily executing orders to supervising AI-driven trading systems, managing exceptions, monitoring market quality, and ensuring appropriate governance and risk controls.
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