[ Q & A
|
N I C K
C O X ,
J P
M O R G A N ]
The TRADE speaks with head of fixed income trading at JP
Morgan Asset Management, Nick Cox, on the explosion of
bond trading platforms and which technology solutions it is
looking to implement in the near future.
Hayley McDowell: Over the past year
there have been periods of height-
ened volatility in fixed income. How
have you managed trading activity
in the context of these periods?
Nick Cox: Obviously we are
long-term investors and we are
not trying to capture intraday
movements or daytime high/
lows, so although there has been a
pick-up in volatility over the past
year, in some ways the increase in
volume and turnover has effective-
ly facilitated greater liquidity. With
greater uncertainty there’s more
windows to facilitate risk transfer
at sensible transaction cost levels.
HM: How has the changing regulato-
ry and business landscape affected
liquidity for buy-siders?
NC: Looking back, I think there has
been a change in liquidity partic-
ularly for products such as credit
since 2008 when the increase in
capital rules impacted the amount
of inventory that sell-side firms can
carry. But looking more recently,
the liquidity situation probably
hasn’t deteriorated much in the
“The number of human brokers that are
employed and justifying having them on a
desk is clearly changing.”
two-way flow and those increased
volumes have allowed us to move
risk around more easily than when
volatility is very low and markets
are very quiet. It provides just not
just alpha opportunities in terms
of what the economic or politi-
cal news is going to mean for the
medium to long-term move in the
market, but they provide liquidity
38
TheTrade
Spring 2017
last three to four years. I believe
we have hit a new normal level
for now. The next big thing on
the horizon is the introduction of
MiFID II - particularly pre- and
post-trade transparency regime
- and the great unknown of what
will actually be the impact on
liquidity from that change. For the
last few years, I would say we have
been in a reasonable stable state of
cost of liquidity.
From our perspective, the pre-
dictability of the cost of liquidity
is one of the most challenging as-
pects. We factor transaction costs
into all of our investments strate-
gies, either implicitly or explicitly.
Some of those costs enable you to
have a good idea of whether you
can capture alpha opportunities or
whether the opportunity is not re-
alisable because transaction costs
outweigh the alpha. The challenge
when transaction costs are volatile
is, do you try and put an trade on,
but it gets eaten away by the trans-
action cost or do you not put the
trade on and miss out on an alpha
opportunity? The uncertainty of
transaction costs, rather than hav-
ing an absolute level of transaction
costs as being high or low, has been
challenging at times.
HM: How do you think MiFID II will
specifically affect liquidity for the
buy-side?
NC: I think the biggest challenge
for MiFID II is the pre-trade trans-
parency. For post-trade, you have
the precedent of TRACE in the US,
although in Europe it will be some-
what more stringent. It’s a differ-