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be one of them . While liquidity in fixed income is highly fragmented , there is plenty of liquidity to be found at the right price and place . The challenge is for the holders of liquidity to make this available . Imagine a marketplace in which the natural holders of liquidity , namely asset managers , were to start offering portions of their liquidity ? This would revolutionise the 1970s style market structure that we still have now in 2020 .”
The buy-side has increasingly leaned towards taking on a price maker role in fixed income markets as relationships with dealers have evolved . BlackRock ’ s head of global trading , Supurna VedBrat , has previously highlighted that she sees the buy-side taking on the alternative role in disclosing pric-
“ This will revolutionise the 1970s style market structure that we still have now in 2020 .”
MILES KUMARESAN , FOUNDER AND CEO , WAVE LABS
es , which could be beneficial for asset managers and the liquidity landscape .
Kumaresan adds the price making functionality on the eLiSA system offers any asset manager the ability to make prices in thousands of bonds while satisfying portfolio constraints . Using an example of a typical fund having positions in a smaller subset of names making up the benchmark index it tracks , Kumaresan explains that a position in 500 names out of 2,500 leaves the trader synthetically short of 2,000 . By making prices on the 2,000 bonds , Kumaresan says , the fund achieves a reduction in tracking error and can capture bid / ask spreads associated with the illiquid bonds .
“ This activity alone can boost the performance of the fund by 25bps or more if done right - meaning , if you usually make 50bps annualised , now you are making 75bps or more . The net effect of this is the fund ’ s performance ranking will climb upwards ,” Kumaresan claims . “ This is particularly useful in extreme or volatile market conditions , where besides capturing much larger gains , traders can help stabilise the market . A natural consequence of the price making activity is the flooding of new liquidity into electronic venues . Even illiquid venues can attract liquidity , so long as they offer innovative protocols .”
The execution platform is currently connected to a major fixed income trading venue , with plans to add more in the near future . It also includes auto-negotiating functionality which aims to give traders the opportunity to work multiple venues or multiple orders at the same time with zero touch , according to strict conditions set by the user .
“ The auto-negotiation is like cruise control , and it ’ s extremely useful if you ’ re the driver with so many other things happening . It is just not practically possible for a trader to simultaneously work 300 names , and that ’ s why so many opt for RFQ because finding liquidity is so difficult and time-consuming at venues . The trader should do the thinking part and let the technology do the laborious liquidity seeking part .”
“ Other systems simply operate as an interface to send orders to other platforms to be worked from there , which is a very manual process . With the automated liquidity seeking tool , our platform will find the liquidity , negotiate multiple bonds for you , and help navigate the execution .”
64 // TheTRADE // Fall 2020