Conference Dailys TRADETech Daily 2018 | Page 15

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Miles Kumaresan , head of trading and FinTech at Nordea Asset Management , has brought his technology expertise and experience to tackle the ongoing issue of sourcing liquidity in the bond space through equipping traders with the right tools for the job .

There is nothing more challenging and relevant now than the aggregation of fragmented liquidity in all asset classes , especially in fixed income ,” says Miles Kumaresan , global head of trading and FinTech at Nordea Asset Management . “ I ’ m consumed with this problem .”

Enhancing Nordea ’ s ability to source liquidity in the fixed-income markets , particularly in the credit space , is the most prominent conundrum facing Kumaresan . Having spent the bulk of his career with investment banks and hedge funds , Kumaresan is now applying his experience with the Copenhagen-based asset manager , having joined the firm in February 2016 with the dual responsibility for Nordea ’ s trading and technology teams .
“ I was never a born trader ,” he says . “ I was one of these guys who could create tools to help with execution . Everything that we are doing now is to create tools ; where they already exist we will use them , but if they don ’ t exist then we will create specialist tools for the traders , either in liquid or illiquid brackets . This is what we do .”
It is , of course , a futile exercise to implement technology tools without the right teams in place to use them . As well as its 26 traders located in Copenhagen , Bergen and Stockholm , Nordea has invested in a five-person trading research and development team and a five-person IT team focused on trading , a reflection of the company ’ s recognition that technological innovation is critical to staying competitive . and some of these errors can be very costly . “ You need to automate all the operational instructions at every part of the pipeline , starting at the order source , all the way down to it hitting the trading desk ,” he says .
Nordea ’ s trading structure has evolved throughout the two years Kumaresan has been with the firm , the primary of which is the division of teams by instrument liquidity across asset classes first and then by specialisation .
Orders traded in the new cross-asset “ Liquid Trading Desk ” are suitable for automatic routing to brokers with either zero or very low touch , using what Kumaresan calls a proprietary systematic model that plugs directly into its FlexTrade execution management system . This frees up the high touch trading teams to add value on demanding orders .
The asset manager also has specific teams dealing with high touch trading where specialist knowledge and human involvement can be required . But , even here , traders are given tools in line with the technology-driven income . Finding liquidity in the fixed income markets , specifically in credit , has become one of the most enduring puzzles across the buy-side . Credit liquidity is fragmented and discontinuous across both price and time partly due to the infrequent trading property of corporate bonds , explains Kumaresan , which is not helped by the fact there are over ten thousand ISINs in Europe and twice that number in the US .
“ Fixed income is still in the dark ages in a technological context ,” says Kumaresan . “ Before the crisis , banks had all the balance sheet needed to price a wider range of bonds in size . Now you have the same trading structure even though the sell-side can no longer carry big inventory .”
The more advanced segments of the sellside have been trying to make up for the shortcoming of diminished inventory through technological and quantitative innovation — for example , by automatically pricing a large universe of bonds in order to offer tradable
“ Everything that we are doing now is to create tools ; where they already exist we will use them , but if they don ’ t exist then we will create specialist tools for the traders , either in liquid or illiquid brackets . This is what we do .”
Building a diverse team An efficient trading operation requires a diverse set of traders , ranging from classical to quantitative , to enable it to thrive . Kumaresan says that Nordea has a strong base of experienced traders to which it has added three junior traders with strong quantitative and IT skills , brought in last year .
“ Everyone in trading has their skills enhanced continuously wherever they are lagging ,” he adds . “ This is how we were able to retain all of our traders during transition and leverage off their depth of experience . Stacking the desk with only cheaper junior talents was never an option .”
The first thing to take care of in the process is risk rather than reward , according to Kumaresan . Operational mistakes can occur extremely easily with manual repetitive tasks focus of the company .
Fixed income traders , for example , use tools that aggregate real-time and historic market data sets to assist with price and liquidity discovery . In equities , the company is developing a model to price liquidity in very large orders to help traders with large blocks .
The liquidity conundrum Equities may have its fair share of challenges in aggregating liquidity across lit and dark venues ; however , liquidity in equity markets is a relatively predictable phenomenon , mostly due to price transparency . Foreign exchange , meanwhile , still has its antiquated mores — in particular the last-look practice that distorts the true liquidity picture .
The real liquidity problem lies in fixed streaming prices . Kumaresan believes this is a “ is a big step in the right direction ,” with innovations of this kind becoming critical going forward in retaining the role as providers of easy liquidity .
“ The new reality of the market structure warrants a new trading paradigm ,” says Kumaresan . “ Just because we get the majority of our orders done on the first day does not imply that the market is liquid or that the prices we got were good . It is merely the best price given the circumstances . I believe that , particularly in credit , the buy side becoming price makers on the names in which we have a natural interest in , through all-to-all trading , is critical to generate and attract liquidity . This active way of sourcing liquidity could become a real disruptive event in credit .”
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