[ M A R K E T
pre-trade data inputs, but you’re not going to neces-
sarily trade a larger sterling order of a long-dated ster-
ling bond via an ECN. You’re still going to look for a
single axe and make a judgement as to whether that’s
the best outcome, given that asking more brokers
could impact your market. For now, the benefits of
automation lie in liquid asset classes such as rates and
FX, and less in illiquid emerging markets, high yield,
and investment grade markets, in something like US
Treasuries the human trader many not be able to add
too much value in normal market circumstances.
The US Treasuries market has recently seen new
platforms, protocols and liquidity providers. Is this an
example of the kind of market in which fixed income
traders must expect to trade differently?
MO: The most liquid markets are the ripest for new
trading protocols to develop. On the other hand,
they’re also the ones where the buy-side is most likely
to rely on old habits. High levels of liquidity allow new
trading protocols to gain traction quickly – but also
permit the buy-side to remain dependent on RFQ. The
RFQ works in the US Treasuries market: you are going
to get responses back. In other areas of fixed income,
it might not work so well, forcing firms to find other
ways to trade. We’re looking at the tools and keeping
an open mind on new ways of doing things. But that
doesn’t mean the end of RFQ. We prefer to take more
of blended approach.
A central part of my role is to give my traders as
many tools as possible with which to execute trades.
But they are in the best position to judge which tool is
appropriate on a trade-by-trade basis. I need to be in
the market, understanding what the various approach-
es to trading are and which ones could be relevant to
us, in order for them to make decisions on individual
trades.
This certainly extends to
the new ways in which
electronic liquid-
ity suppliers
are providing
liquidity
through
some of the
established
electronic
trading
platforms
R E V I E W
|
F I X E D
I N C O M E ]
in the more liquid fixed income
markets. Any new source of
liquidity is of interest. I don’t want
us to get rid of the old protocols as
there may be cases where they are
still appropriate, and that includes
sourcing new types of liquidity
from existing
platforms and
“ I think it’s important to
protocols.
constantly question the
To what
extent is it
status quo, and envision
useful to look
how we would design a
to the equities
function or technology if we
market for
were starting from scratch.”
strategies/
technologies
DAN VEINER, BLACKROCK
that can help
optimise fixed
income trading and investment
processes?
DV: Certain concepts translate well
from equities to fixed income. For
example, equity portfolio trading
is a 20 year-old protocol, and the
data, automation and transparency
is at the stage where fixed income
trading has adopted it. Bilateral
FIX lines and FIX hubs, which I
mentioned before, are other ones
borrowed from equity. For very
liquid, standardised instruments,
such as on the run US Treasuries,
government bond futures and
ETFs, agency algos are important
tools in fixed income that were also
borrowed from equity.
At the same time, many attempts
to ‘cut and paste’ from equity have
failed due to structural differences,
such as the heterogeneity of bonds
and rates derivatives. An example
of this would be credit or rates
dark pools that have had to get
very creative to prove relevance in
order to overcome the difference
between agency equity trading vs
OTC fixed income trading.
Issue 60 // TheTradeNews.com // 73