EQUITIES AND FIXED INCOME
is continuing within fixed income
may result in the buy side interacting
more through algorithms with our
counterparties. There is a challenge
with the inducement and unbundling
regime within MiFID II as the pricing
model of fixed income research is
unlikely to generate enough return
for the sell side. It is less expensive
compared to equities which is the likely
reason why the sell side concentrate
their efforts on flows where they can
generate revenue to the detriment of
the coverage. While the pricing model
for fixed income research may be
flawed, as with many, I agree it is not
as valuable compared to equities. We
still need to figure out how to resolve
the lack of high standards within PM
coverage.
for primary issuance. Initiatives like
project Mars, which was driven out
of data ownership concerns, creates
confusion among the buy side and
we see additional primary issuance
solutions looming which calls out the
need of aggregation. Since IHS Markit
took over Ipreo, we have seen a spike
in client onboarding and it is working
well for us. We are aware of yet another
impending solution which cannot be
named due to confidentiality reasons,
which could be promising with its
already established reach to market
participants.
The market practice around primary
issuance of bonds are still suffering
from opaqueness and manual trading.
Are you seeing any highlights toward
improvements? Have you identified any changes to
how the buy-side traders use and
various brokers perform with their
equity trading algorithms post MiFID
II? To what extent do you think these
changes are due to technology
innovation or enhanced leverage of
the new market structure? (Is the algo
interaction with electronic liquidity
providers increasing in importance?)
We are reviewing and developing our
internal process for primary issuance
of bonds where we use Ipreo as the
backbone for workflow. This enables us
to create a faster sequential workflow
and order creation for our PMs.
Afterwards the trading desk can use
Ipreo as a central hub to collect all the
market information and details for the
issuance including the coverage of
the issuance on the day. We are now
working on connecting Ipreo to attain
full STP with our SimCorp platform as
the allocation is still manual in Ipreo.
We have already come half-way in
front to back STP automation after
investing a lot in reducing manual
processes between the PM and
trading desk systems which has also
improved our compliance processes
with a unified audit trail. I can already
foresee the need to build a system
for projects like this where we need
multi-platform aggregation capabilities We see that many sell-side firms are
challenged to stay ahead with the
phase of technology innovations and
cost is the main challenge. There are
significant developments within the
sell side SOR and introduction of low
latency connectivity to respond to the
increased market fragmentation, use of
periodic auctions and access to ELP SI
liquidity.
We need a granular review and should
tailor our approach to access mid cap,
large cap, low and high touch with
multiple decision trees to support
these processes. We cannot use the
same parameters in our SOR for all
markets and tailoring the approach is a
big challenge as sometimes we would
ideally need more data to validate our
decisions. Therefore, we need to work
closely with the sell side as consultants
who need to assist us with adjusting
the parameters specific to our firm’s
requirements.
Eric on the front cover of The Buy-side Perspectives magazine, issue 9
Summer 2019
www.buysideintel.com
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