Do you see portfolio trading of bonds
with electronic market makers as a
viable option? If ‘yes’ – how do you see
this interaction evolving?
We have met a lot of sell side to
evaluate this new process since the
beginning of the year. We are very
interested about this process as it can
be suitable for specific liquidity flows.
The increase of passive management,
with the ETF ecosystem, and a
technology driven approach has
enabled this new type of bond trading
with additional opportunities to
access liquidity to a low cost. The sell
side are happy to access this liquidity
for hedging and matching some ETF
workflow. The remaining challenge is
around the workflow as it still does not
operate through full STP like you trade
on platforms. We have built a specific
workflow to send RFQs, collecting and
storing the information and to evaluate
the pricing from our counterparties.
We need the platforms to reshape
the portfolio trading as the sell side’s
Microsoft Excel templates are not really
something we can work with. While
we know that electronic platforms
are developing it, there are none in
production yet. We also need to inquire
what extent portfolio trading is suitable
for our trading needs compared to
other protocols. The PMs are interested
in the portfolio trading process for
their portfolio adjustments, inflows
and outflows and transitions between
portfolios. Our job is still to identify
the optimal execution process to fulfil
best execution requirements and to
overcome the challenge of lacking
historical data to validate if portfolio
trading will be suitable for each
portfolio type.
Automation and data will reshape credit
trading over the coming 5 years and
it will be very interesting for buy side
head traders to stay in the forefront,
updating our systems and analytic tools
with these developments.
Summer 2019
We hear from the buy side that market
colour and pre-trade intelligence are
two hot areas of interest. How do you
see these areas evolving within your
multi-asset responsibilities?
Our trading desk is a ‘solutions and
services’ desk. The solutions could
for example be pre-trade advisory
for execution, smart content, market
colour and bespoke analysis of
holdings within specific teams. The
buy-side trader’s capabilities are
increasingly going to overlap with
the sell side as we attain better
technology inhouse. The buy side
are now empowered to consume the
value delivered by multiple technology
providers, customising and producing
smart content. Something that was
exclusively reserved for the sell side in
the past.
Which areas do you wish the
European including British regulators
would focus on resolving going
forwards to improve the market for
the buy-side and their end investors?
The primary major issue is that we
need consolidated tape for both
equities and fixed income, like in
the USA, to deliver better analysis to
support best execution and to attain a
realistic and holistic view of where the
liquidity is. To strengthen the European
www.buysideintel.com
capital market, the regulators need
to prioritise the establishment of a
holistic view.
The second priority would be to
improve the transparency of the bond
market calibrating the definitions
of ‘liquid’ and ‘illiquid’ ISINs as this
categorisation is wrong. More bonds
should be flagged as liquid to support
pre-trade transparency, price discovery
and automation.
A third challenge is the impending
decision on Brexit and how we can
continue to trade after a prospective
British exit from the EU.
We already spent a lot of time in the
first quarter of 2019 to be ready for a
prospective ‘hard Brexit’ by the end
of March. Since then, we continue
to consult with our legal team to
keep up with any changes but it is
difficult to predict the final outcome.
We have already migrated all UK
counterparties and MTF platforms so
we have continuity trading Euro cash
assets. There are still OTC challenges
remaining.
We are following the agenda closely
to be ready for the end of October.
Ultimately it is a very time-consuming
process and we expect the outcome
may become even more challenging
as we may need to finalise a solution
in parallel, with all the other priorities
we have.
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