The WEALTHTECH Book

Empowering Asset Owners and the Buy Side

By Dr Efi Pylarinou

Co-Founder, DailyFintech

There is an undisputable shift in the relationship between the sell side and the buy side. The balance of power is no longer overwhelmingly tilted towards Wall Street and the City, which was the case up until the 2007–2008 crisis. Stricter and more demanding regulatory requirements for financial service providers and the acceleration of tech innovations in financial services – FinTech – are the main drivers that have reshaped the rules governing the relationship between the sell side and the buy side.

It used to be that the sell side, with its few players and ever-increasing concentration of power over its clients (i.e. the buy side, which includes asset managers, mutual funds, pension funds, hedge funds, etc.), was acting more like lords. Nowadays, even though the buy side and the sell side continue to need each other, their relationship is rather one in which “The dealer has essentially been demoted from maître d’ – deciding where everyone sits and recommending dishes – to a waiter taking orders”, as described in a Bloomberg Markets article “The Rise of the Buy Side”.¹

As a result of the regulatory changes, the sell side (i.e. the JPMorgans, the Goldmans, etc.) have reduced their balance sheet activities, pooled back from risk-taking and, in several cases, pulled out of market-making activities. At the same time, buy-side firms (i.e. the Blackrocks of the world) have accumulated more inventory ...