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