[ M A R K E T
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order management system (OMS)
to the execution engines of major
fixed income trading platforms and
ECNs, using appropriate param-
eters. An important element is
ensuring our fund managers are
comfortable with the criteria we’re
using to direct trades to different
execution channels.
There are scale benefits to trade
automation. Intermediation with
banks via ECNs can allow our
traders to put on more trades
more quickly, but a more import-
ant driver for us is securing access
to sell-side balance sheets when
executing bigger trades.
In parallel, one of our biggest
priorities is making more efficient
use of data to determine the likely
cost/benefit profile of a trade.
We’ve been working with banks,
ECNs, and other data providers to
pull in more data, both to support
our ability to assess the potential
cost of a trade, and for use in our
post-trade transaction cost analysis
(TCA). These metrics are used in
RFPs to demonstrate to clients our
ability to deliver a good outcome
when implementing investment
ideas.
On a practical level, we feed
these external data inputs into our
proprietary pricing system, which
generates an estimated aggregate
cost for a portfolio which then
determines whether we go into a
single-name trading mode or start
looking at a portfolio trade. We
still rely heavily on the skills of the
trader to get inside the bid-offer
70 // TheTrade // Summer 2019
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spread on single trades, or to negotiate with a bank
to achieve the aggregate cost we’re looking for on a
portfolio trade.
Jim Switzer, SVP and global head of fixed income trading
at Alliance Bernstein: Data aggregation is probably
our number one priority right now. We’ve been
amassing historical and
point-in-time data
“We still rely heavily on the
through our ALFA
skills of the trader to get
market liquidity sur-
veillance tool over
inside the bid-offer spread
the last five years.
on single trades.”
This has given us
LEE SANDERS, AXA
a fairly robust
picture of the
INVESTMENT MANAGERS
market, which is
now informing
our approach to direct connectivity,
both to ATSs and the sell-side.
Internally, our focus is on systemi-
sation of our investment process. In
today’s challenging liquidity condi-
tions, systemisation allows us to use
different liquidity strategies. One example
is the concept of portfolio trading. The aim
is to look at baskets of risk in a similar way
and be able to trade multiple portfolios at the
same time. This requires not only electronic process
change but also behavioural process change from
traders and the investment team in how they approach
risk management and portfolio optimisation. It also
requires support from the top: senior management has
made it very clear we should strive for innovation and
efficiency.
What are the main ways in which you have evolved
your relationships with sell-side firms and technology
vendors to secure access to liquidity across the fixed
income markets?
Mike O’Brien, director of global trading at Eaton Vance:
In general, the buy-side needs to evolve and think
about their trading strategies in different ways. With
some of the new entrants into the fixed income
markets, there are new ways to trade beyond request-
for-quote (RFQ). The buy-side needs to get more
comfortable with those, understand how they work
and how they can be used across the portfolio so
that fixed income traders have multiple tools at their
disposal to access liquidity. Buy-side traders need to
understand how the market operates and how to value
a bond sufficiently well to be a price maker than just
“Data aggregation is
probably our number one
priority right now.”
JIM SWITZER, ALLIANCEBERNSTEIN
to trade’ via FIX IOI (indications of
interest) direct out of Aladdin with
some counterparties now, which is
a meaningful step towards access-
ing firm-executable liquidity.
a price taker. If someone’s looking for a bid on a bond,
how should the buy-side trader respond? That’s not
in the traditional buy-side skill set, but it increasingly
needs to be. With so many protocols available across
fixed income markets, the buy-side approach needs
to change. As the skill set on the trading desk evolves,
traders will become more comfortable with the newer
protocols and have better access to a wide range of
liquidity sources beyond the RFQ model.
DV: In the repo markets, the rise of electronic RFQ as
a trading protocol has been very impactful, paving the
way for orders and electronic trading, which we utilise
now. In credit trading, the emergence of automated
market-making credit algos has increased dealing
efficiency dramatically. This has allowed for buy-side
auto-ex, which is how we execute the majority of our
fixed income trading tickets (but not the majority of
risk transacted). As an emergent and cost-effective
liquidity vehicle, fixed income exchange-traded funds
(ETFs) have been a game-changer, supporting the evo-
lution of portfolio trading in credit. We’re using ‘click
MO: I’m open to new and innova-
tive ways of approaching a prob-
lem, but we don’t need vendors
to reinvent the wheel with new
technology. I’m always interested
in removing sources of friction
from the trading process as those
represent transaction costs that I’m
trying to minimise.
Technology and data are very
useful tools to improve the effi-
ciency of fixed income desks. Over-
all, technology is going to solve a
lot of problems for fixed income
desks. We’re just at the start of the
journey with artificial intelligence
but I think it is likely to add value
in future.
JS: One of the most important
things we need is a utility to con-
nect fixed income market partici-
pants and trading platforms. I don’t
think any asset manager wants to
Issue 60 // TheTradeNews.com // 71