Fixed income
The existence of live tradable data was questioned by one
participant in the London Alpha Trader Forum (ATF) fixed
income debate in October. The buy side is also irritated by
regulatory focus on Transaction Cost Analysis (TCA). As one
buy-side trader at the same meeting stated, "Why turn down
a line of business just because you’re worried the TCA is going
to be basis points off the market and look bad? Yet you’re
achieving your overall business objective which is to get
portfolio movements done. In my mind, if you do that, that’s
best execution. Why turn that down because of the TCA?”
A different but equally negative outcome is the practice of
not trading at all, because of compliance. Due diligence
requirements are becoming tougher, obliging the trading
desks to dig deeper into each trade and provide more
detailed explanation than ever before. This may have an
impact on how aggressive traders are willing to be in the
market when they do trade. Some participants object to the
level of granularity required by regulators, questioning why
this is necessary. One trader felt that unless the firm is an HFT,
the level of granularity required is excessive.
In London, the buy side has divided opinions about the
merits of some new fixed income liquidity initiatives, with
some traders dismissive while others are more optimistic.
One obstacle to the growth of new platforms is the potential
reluctance of banks to support something that may ultimately
reveal their hand and may even disintermediate themselves.
However, given the major drops of sell side inventory and
constrained sell side resources especially in Europe, there may
be little choice but to adopt these initiatives.
In Germany, there is concern about hidden fees among
trading platforms when making price comparisons. The DACH
buy side also note that using TCA in fixed income is difficult,
as the peer group analysis is skewed as the buy side are both
buyers and sellers. There are also too many factors for the
provider to consider given the complexity of the market.
In France, the buy side are concerned about transparency
– they don’t want the fixed income market to become like
TRACE, the consolidated tape in the USA. The community
also highlighted a need for predictive data for block trading,
including pre- and post-trade data.
Buy-side firms note that end-clients are also taking much
more interest in execution quality than they used to. This
leads to the subject being discussed in client board meetings,
where clients are demanding explanations.
December 2016
www.buysideintel.com
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