The TRADE 60 | Page 72

[ M A R K E T R E V I E W maintain 10-20 APIs to connect to their main sell-side counterparts, nor do dealers want to maintain different APIs to their 100 best clients. There needs to be a utility to connect us all together, allowing direct connectivity to and from our execution management systems. We’re digesting lots of data sourc- es, we have multiple tools and an- alytics running, and we want to be able to engage the market efficient- ly at the point of risk transfer. We can’t do that right now and often have to resort to voice trading. How are you evolving the skill set on your fixed income trading desk? LS: It’s increasingly important that traders are able to set up systems optimally and to adjust rapidly to changing circumstances. We don’t need coders on the trading desk necessarily, but we do need access to coders. Data helps us to predict trading costs. So especially for more passive mandates, the trader needs to be more agile to pull in a whole different set of wish lists, axes, and prices. Even large asset management firms are running fairly lean trading desks, which means we need our traders to be equally comfortable doing an automated or a voice trade, giving market colour, filtering information, interacting with the market, and above all guaranteeing the best outcome. JS: We still need the people with 20-30 years’ trading experience, but we’re interspersing them with traders that have smart order routing skills, or the ability to write code. There are also similar developments in our analyst and portfolio management teams. It’s important to have diverse 72 // TheTrade // Summer 2019 | F I X E D I N C O M E ] experience on the trading desk. We have traders that have traded on all three of emerging markets, investment grade and municipals, while others have moved around between desks geographically. An ideal candidate is someone with equities experience as it is clear we in fixed income are now following the same path. When I first talked to our equity guys, I learned about dark pools, all-to-all trading and direct connec- tivity, but I also heard about illiquidity and fragmenta- tion, which are not words I expected to hear from an equities trader. They are a lot further along with the electronic process change, mostly because of regulato- ry drivers. In fixed income, we’ve had relatively little direct regulatory intervention, but we all recognise that to compete going forward we have to be able to do things in a much more efficient manner. MO: The role of a buy-side fixed income trader has changed pretty dramatically since the financial crisis, albeit the change has been more of a slow evolution over time than a big bang. Prior to the crisis, when liquidity was abundant, buy-side traders were primar- ily execution focused, achieving best price by calling round a handful of counterparties. That type of trader is no longer relevant. Today, buy-side traders need to develop a deep understanding of portfolio construc- tion, market structure and bond valuations in order to contribute alpha to a trade. So, yes, we are looking for our traders to have different skill sets, but that is a re- cent phenomenon brought about by electronification. Our growing use of the tools that enable automation are the result of that change, not the cause. LS: We are keen to increase automation levels, but the priority remains the best outcome for our clients. Rather than being too rigid, we have to empower the trader to make the decision. If the trader thinks it’s not the right situation for an automated trade, they should be able to work it in a different channel. If you replace human traders with purely automated tools today, you won’t get the necessary flexibility. If the market keeps going wider, sometimes you have to stop and consider other options, perhaps by working an order agency rather than risk. “The most liquid markets We will continue to automate, but only where we think it will are the ripest for new benefit the client. Some of the trading protocols to markets in which we trade are still develop.” quite manual, such as the sterling credit market. You can automate MIKE O’BRIEN, EATON VANCE