Buy-side Perspectives Issue 7 | Page 12

STATISTICS FOR LIQUIDNET FIXED INCOME: To tackle the first issue, Pumfrey introduced a plan involving member education and tough rules on behaviour. “When we went into more depth with traders, we found that most times poor execution behaviour is not intentional, rather issues arise because the trader can’t find a way to make their workflow work. So we focused on improving their integration with Liquidnet to make it as easy for them as possible to trade effectively.” Building bonds In response to the second priority, the company purchased bond trading platform Vega-Chi early in 2014 and used that as the starting point for Liquidnet Fixed Income, which launched a dark pool in September 2015. Vega-Chi's founder, businessman Constantinos Antoniades, is now head of fixed income at Liqudnet and continues to run Liquidnet Fixed Income. A year after its official launch, the platform currently has 215 active firms. According to Pumfrey, the main challenges in the bond market are 12 • • • • Has traded $1.7billion in Europe since launch Average indication size is $4.5 million Average execution size is $2.5 million a trade Has 71 institutions providing liquidity in Europe twofold. First, the amount of inventory provided by the sell side is down 80-90% since 2008. At the same time, there has been a massive increase in bond issuance. These factors have been exacerbated by historically low interest rates, together with periods of market volatility, not least in reaction to recent events including the UK’s surprise vote in favour of Brexit in June, as well as the victory of US presidential candidate Donald Trump in the US election in November 2016. Meanwhile, the G20 global regulatory agenda and particularly MiFID II continues to have a transformative effect on the global bond market. “MiFID II will have a huge impact on fixed income markets. It’s similar to where the equities markets was before electronic trading completely change the market structure,” said Pumfrey. “One challenge is that unlike the equities market, there is no reference www.buysideintel.com price. Being able to aggregate data sources to help define the right price for a bond is key to enabling transparent and efficient trading.” One possible strategy to resolve some of the challenges in fixed income is to allow the sharing of order indications in a dark pool and trading with other buy-side firms directly. With market participants trading in the dark, market impact is minimised and price improvement is maximised. In a more transparent fixed income world , there is a need for detailed TCA, which is in a relatively nascent stage of development in fixed income compared to equities. While a number of market participants have talked about this over the years, little has changed in terms of the consolidated tape, despite it being one of the central recommendations of AFME prior to MiFID. It is widely known that a number of large exchanges make December 2016