The TRADE 60 | Page 73

[ 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