[ I N - D E P T H
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P O R T F O L I O
A new liquidity outlet
Tradeweb asserts that for the
buy-side, the process means
that traders can achieve faster
execution and reduce
information leakage
on trades much like
the billion-dollar
trade we began with;
large notional in ag-
gregate and multiple
CUSIPs which are difficult to
price. Since the platform went live,
Bruner says Tradeweb’s clients
have been quick to adopt portfolio
trading, even in their day-to-day
trading activities.
“We’ve been surprised by how
consistent the portfolio trading
has become in such a short time
frame,” he comments. “The nature
of portfolio trading is that it can be
big and chunky, which sometimes
means it’s also sporadic. But now
we have clients who do portfolio
trading with us literally every day
and the process has embedded
itself as a new liquidity outlet.”
Carl James, global head of fixed
income trading at Pictet Asset
Management, echoes Bruner, high-
lighting the move towards portfolio
trading as being the ‘new norm’ for
large credit trades like the one we
started with. James says there isn’t
a right or wrong way to execute
such a trade, but portfolio trading
gives buy-side traders the optional-
ity to effect changes on a portfolio.
“Portfolio trading is quite a
big trend in the industry at the
moment, and there are several ele-
ments to this. A big driver has been
the rise of ETFs, but we also know
that the sell-side is under pressure
in terms of margins, and by using
technology, firms can view that
risk in a much more efficient way,”
James comments.
“A few years ago, executing an
inflow through a portfolio trade
was the less obvious choice. Now-
56 // TheTrade // Fall 2019
T R A D I N G ]
adays, it’s normal to utilise portfolio trading, either on
a bilateral basis where we engage to trade that risk on
or off the portfolios, or we do it on various different
platforms. It depends what you are looking for, but
that’s your low-touch-type of methodology, and it’s a
nice thing for the buy-side to do in terms of executing
all of that business at the same time.”
There are other ways a trader could tackle the bil-
lion-dollar credit trade in question. It could be traded
in block size shares in an ETF or via the credit index,
or a trader could work the bonds
within the portfolio individually
on an all-to-all platform. But
industry trends in the form of
an explosion in fixed income
ETF assets, the progression of
market makers, and the rise of
algorithmic trading, have con-
tributed to buy-side houses seeking
out portfolio trading to connect the
dots on multiple credit instruments for execution.
Bond ETFs, which BlackRock predicts could top
two trillion dollars in assets within the next five years,
have played a crucial role in the evolution of portfolio
trading in credit, and particularly for the electronifi-
cation of credit trading in investment and high-yield
bonds.
“Around five years ago, there weren’t many liquidity
providers in credit that could algorithmically price
thousands of bonds in real-time, but now – as a result
of the explosion in ETF assets - there are, and their
numbers have only grown,” explains Bruner. “As a
result, there are portfolios being traded off the
back of create/redeems of ETFs
every single day. That