FIXED INCOME
to build our own systems and tools
to overcome the shortcomings of the
external vendor’s solutions. We are
leveraging our existing infrastructure
as a backbone while building further
to improve automatisation capabilities
with both external partners and internal
development teams. Tools have been
and will continuously be created. It is a
long, ongoing process and we do not yet
have all the tools, technology and data
we would like. I guess the development
will never end.
Competition among platforms/vendors
is always good. Electronification and
competition has improved the data
quality across the providers but there is
still a long way regarding the accuracy
of data. I think we have seen innovation
from both the legacy players and the
newcomers. The new initiatives attempt
different approaches and we see a
tendency among the old legacy players
to try to follow, some with greater
success than others. I expect to see even
more participating brands in the coming
years which we have already begun to
see again. This time it is not only the
trading venues, pre-trade aggregators,
TCA providers etc but to a greater extent,
EMS providers and vendors allowing
for game theories, robotic approaches,
analysis and more advanced algo’s.
There is a possibility of a threat from
external disrupters with potential for
tech firms to take over both buy and sell
side roles but I think we are a while away
from that just yet.
As we still see new vendors entering
the stage, we cannot engage with all
new venues and platforms. I think the
industry struggles with supporting new
viable initiatives to achieve the critical
mass which is important for instance
dark pools. I think all-to-all (anonymous)
trading is another evolving trend and
one of the solutions to structure the
market and help sourcing liquidity in this
fragmented market. As long as we do
not have a utility to connect all market
participants, I would like to see more
aggregation of platform/vendors so we
don’t spread our trades over too many
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venues and never meet. Buy-side bond
traders should ideally take the initiative
of getting outside of their comfort zone
and move towards price making and
buy-side to buy-side trading in order to
reduce their information leakage. It may
require a change of mind and skillset,
but I believe it is the way to go forward.
I often hear the counterarguments from
the sell side as they see buy side to buy
side trading as a threat to their business
model. I do not agree as, when I meet
other buy side in a block trade (which
might never have been done otherwise),
these trades may require both of us
to finance/invest in the other side of
our trades, which the sell side may be
better suited for. The main focus on all-
to-all anonymous trading seems to be
buy side to buy side, which makes the
progress slow and difficult. A few years
down the line, with several technology
vendors trying to enter the stage, we are
still trading with “the usual suspects” and
I now find that we are in the early stage
of electronic bond trading within Fixed
Income.
Timing is always difficult, but we have
just started a journey of evolution
and change and the Fixed Income
trading world will look very different
in three years time. I think the rate of
change will increase. The competition
between technology providers, trying
to aggregate and analyse data, will
emerge and we will still see new
vendors/platforms. Ultimately, I hope
for improved aggregation. Technology
will continue to lead the way, add value
in the future and help us optimise the
trading processes.
Automation makes our trading
team scalable in the growing AUM
environment and the data tools help us
target the most appropriate execution
method so we know where to go for
best execution and the likely cost/
benefit profile of a trade.
Data will hopefully become more
reliable and accurate leading us to
continue to be more quantitative driven.
Continued access to competitive pricing
www.buysideintel.com
and ability to source liquidity is crucial
for our business. The option of only
relying on traditional sell-side brokers
delivering full service is no longer there
as new players enter and new ways of
trading are opened up through new
ways of using data and technology.
I think we will see a further
transformation of the traditional buy-
side/sell-side relationship with buy
side, being the owner of the assets,
becoming more like liquidity providers.
The development in AI and Machine
Learning is fascinating and fast but we
must not forget the fact that it will not
capture the irrational behaviour of the
market so there will still be a need for
humans.
Do you see portfolio trading of bonds
with electronic market makers as a
viable option? If ‘yes’ – how do you see
this interaction evolving?
Yes, I certainly do. Portfolio trading has
been an area of huge development
last year and I foresee this to continue.
ETF’s are becoming a big part of the
market and has led to the emerging
of specialised non-bank players, who
electronically price requests for multiple
line items in one trade.
Portfolio trading is very important to us
and we are looking deeply into how we
can leverage this process. Being able
to have a very good idea of where we
can execute on the wire is imperative in
choosing the right executing strategy.
We have built and tested our own model
for this and as the post-trade analysis
shows very good and trustworthy results,
we increasingly do more of those trades
now.
Portfolio trading helps us in our
rebalancing, trading in/out flow and
leveraging data, where we sometimes
need to buy/sell every single line item
in a portfolio. So, for us it has helped
to access liquidity at a low cost with
reduced manual workload. The process
is not fully automated (STP) yet and we
still need to do some manual activities
Winter/Spring 2020