[ M A R K E T R E V I E W | F I X E D I N C O M E ]
FIXED INCOME AUTOMATION :
gearing up for the primary markets
Competition in the new issuance technology space is increasing and the first steps to re-stitch the primary landscape will be to focus on automating manual processes and providing transparency , says Charlotte Decuyper .
Reliance on manual and voice processes for trading bonds during COVID-19 exposed the constraints of the traditional fixed income markets , particularly in relation to secondary market trading . As volatility rose , a lack of risk capital and scaled-back balance sheets on the sell-side left many asset managers struggling to exit positions in a timely manner . This created a sense of urgency on the buy-side to be ready for any future episodes of volatility and led to wholesale reviews , upgrades and automation of current workflows wherever possible .
While the secondary debt markets have benefitted from greater use of technology and automation , as well as , new alternative providers stepping up during the pandemic , the primary markets seem to still be sitting on the sidelines . Yet , according to PwC , ¤ 178bn in European corporate debt was raised in the third quarter of this year across 287 deals . In addition , AFME reported that EU governments accumulated ¤ 893bn in bonds and bills issuance during the second quarter of 2021 . It is obvious that the resilience of this market segment is critical , given the reliance across Europe on debt issuance in a post-pandemic recovery environment .
Access to the primary market has long been considered too manual , opaque and prone to errors ; an outdated process requiring asset managers to dedicate large amounts of time to build and review allocations . In a low-interest environment , competition for new issuance is fierce ; and while a solution could be seen as the holy grail from the buy-side , the question is whether debt capital markets ( DCM ) desks at banks are willing to concede some control to overcome the impediments slowing the emergence of a workable solution , namely data , technology and access .
Standardised issuance identifier Standardisation of data will likely forever be at the centre of making financial services more efficient , and the issuance process is no exception . To make the automation of the primary process a reality , the
48 // TheTRADE // Winter 2021