as the sell-side know the fact that they
also have to execute the small orders in
order to see the larger ones.
Tina at the 12 th ATF Fixed Income London
We are going through the biggest
capital market transformation ever
seen and at Nordea AM we need to
be adaptive and navigate wisely to
capture all the opportunities out of this
rapidly changing environment. This is
challenging the traditional buy-side
trading and execution capabilities.
Todays trading in financial instruments
is going through a massive change,
driven by several disruptive factors
affecting the whole market place
of which regulation is one of them
– with MIFID II as the kick start. We
have already now seen an increased
complexity in the whole investment
process, which our trading team is a
huge part of. We need to adapt to this
environment, which also demands us
to rethink and review our processes, to
evaluate if something can be improved.
Our trading team has already been
through a huge transformation and
it is just the start of a long and very
interesting journey, where technology
plays a huge roll. We now operate with
a much more data driven approach
in an increasingly complex trading
environment, but I will come back to
that.
How do you perceive the brokers are
differentiating with their high and
low touch services, if at all, in the
increasingly electronic market within
both the primary and secondary
markets?
I think we first of all need to define high
24
and low touch within the sell-side to
answer your question. If we are talking
‘liquid’ vs. ‘illiquid’ trades, more and
more sell-sides introduce algo trading
for the low touch/liquid flow in rates
and small sizes in credits. I do not always
find them working very well even in
the less volatile markets though. After
MIFID II, the traditional buy-side to
sell-side relationship has changed in
order to achieve best execution, which
has led to a shift towards greater levels
of electronic trading. However, despite
the fact that we entered the next
decade in this century, I still feel the fact
that quite a few sell-side continue to
struggle with manual updates of runs,
flows, axes etc. and the infrastructure
is not yet in place. For rates, I would say
automated execution is way ahead. It is
my impression that sell-side (the same
way as the buy-side) is trying to use
technology to automate as much of the
low touch secondary market trading as
possible in order to allocate their time
on their high touch service. I am sure
that automated trading will increase
going forward and we will also see
more no touch trading for smaller sizes
through DMA and STP.
Looking at other interpretations of
the definitions, if the differentiation
between high and low touch services
is referring to trading a block or in
small sizes, I would say that the broker
differentiation is less significant for
rates compared to credit. In credit, small
flows might get ignored from time to
time, especially in volatile markets, but
I do not view it as a problem in general
www.buysideintel.com
The traditional buy-side/sell-side
relationship has been redefined due to
structural market changes, regulation
and enhanced technology. As an
example, the sell-side are increasingly
under pressure due to their reduced
balance sheets and the introduction
of new market participants such as
non-bank market makers and agency
brokers, so the sell-side role has shifted
from facilitating risk to facility/recycle
of flow.
After MIFID II, there has been a tendency
among the sell-side, who previously
were in contact with both the PMs and
the trading desks, to mainly focus on
the flow from the trading desks instead
of the PM coverage. I do not feel this
change has been a huge problem, as
our PM’s still have access to analysts,
sales people, counterparties etc as
we do at the trading desk. However,
some of our PMs experience a bit less
coverage directly from the sales people
though. But not all of our PMs are
overly concerned about the sell-side
interaction - some of our PMs prefer to
talk to them directly and others prefer
to let all information go through our
trading desks.
As the buy-side have shifted their
trading towards greater levels of
electronic trading, the whole trading
process and behaviour has changed
from the point of order generation,
pre-trade, execution through to post
trade. The improved use of technology,
enhanced analysis and data aggregation
have improved the buy-side possibilities
to see alternative ways of accessing the
liquidity and execution methods.
It is important not to forget that the
human aspect and relationship-based
trading is still important especially for
high touch/illiquid trading. The need for
liquidity seeking high touch services is
still there. The negotiation part of a trade
is still very important and I think it is part
Winter/Spring 2020