[ M A R K E T R E V I E W | F I X E D I N C O M E ] need to have a complete lifecycle of adjusting scores up and down on a daily basis . How do you reward or penalise quotes that never resulted in a trade ? How do you score two bad quotes ? It ’ s equally challenging to give new or non-mainstream brokers a fair chance . If you don ’ t have much data , how can a model recommend someone with limited trade history ? We believe we have a complete process for this with clear explanations .”
Elsewhere , eLiSA starts with the portfolio manager in providing granular pre-trade analysis , as well as data aggregation , historic and visualised axe , indication of interest ( IOI ), request for quote ( RFQ ) data , and the system ’ s flagship real-time fair value analysis .
Kumaresan explains that most bonds are interrelated and there are significant non-linearities in their relationships . This means that estimating an accurate fair value , or price , for a bond based on where others are trading is a big challenge for market participants , particularly doing so in real-time . The fair value analysis aims to solve this challenge by demonstrating recommendations that can be converted in terms of potential profit and loss .
“ We take pre-trade analysis to a much more granular level in terms of what the market is doing and the fair value . It is important that the trader has confidence in the fair value recommendations as this is absolutely key to the system . It runs throughout the entire platform . This is yet another deviation from the typical equities-style use of reference quotes only in fixed income ,” Kumaresan says .
The during-trade analysis also allows traders to monitor and analyse market conditions to find liquidity and track execution trends , alongside real-time estimations of probability of fill , and optimal execution parameter recommendations .
“ Unlike equities , fixed income trading is closely linked to the portfolio manager and our tool starts with the portfolio manager , with pre-trade analysis and portfolio construction alternatives ,” Kumaresan says .
“ Then , it goes to the trader in the form of single , list , portfolio , substitute or synthetic orders . With the exception of portfolio orders , you don ’ t just send it to one broker or venue , you work the orders in all available liquidity pools and with many different brokers . This is realised using a variety of protocols following trader specified scheduling logic to negotiate and execute that package of bonds , to then access that highly fragmented liquidity . Wherever the other side of a trade is posted , eLiSA will find it .”
“ The much-needed paradigm shift in fixed income trading needs catalysts for change and eLiSA may just be one of them .”
MILES KUMARESAN , FOUNDER AND CEO , WAVE LABS
For execution , eLiSA provides several order types including portfolio trading , which has surged in popularity with buy-side traders recently . However , Kumaresan explains that when engaging with portfolio trades , it can be difficult to know if the price of a bond from the 200 names in a portfolio is , in fact , a good price . His platform aims to offer more advanced slippage decomposition analysis and optimal execution evaluation to solve this challenge , with the aim of reducing transaction costs .
“ With portfolio trading , it ’ s extremely important to get that price back from the broker , decompose it and see for yourself if you are being priced fairly or not on a bond-by-bond basis . You may see that 90 % of the pricing is indeed fair , and want to remove the outlier bonds from the portfolio and source it separately . This is another way in which traders add significant value .
“ In a world where it is very difficult to know where a bond should be priced , verifying the broker pricing of hundreds of names in a portfolio in addition to all other trading tasks is a daunting prospect without tools to assist . But with our system , from a compliance point of view , at the click of a button one can document best execution in large portfolio trades ,” Kumaresan says .
“ The much-needed paradigm shift in fixed income trading needs catalysts for change and eLiSA may just
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