Buy-side Perspectives Issue 17 | Page 24

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