[ I N D E P T H | B U Y - S I D E P R I C E M A K I N G ]
the liquidity when the time is right and the price is right in a marketplace where we are frankly at the mercy of a number of participants who are far less price sensitive . That ' s why you ' ve got to be careful because once you reveal that you might be a buyer then the likelihood is there will be an algo out there able to buy ahead of you .”
A way off from market making Buy-side shops can iceberg orders via external venues such as Bloomberg ’ s AllQ platform – which shows dealer-contributed prices in real time for bonds – via the UBS Bond Port solution . However , whether or not the market is able or willing to evolve to allow buy-side firms to quote directly onto said platforms remains to be seen . “ I ' m not sure necessarily that the market would take that well ,” says head of fixed income at Liquidnet , David Everson . “ That ' s not to say there aren ’ t places where buy-side can make their own pricing and stick a firm order out there for people to see .”
Due to a limited handful of offerings such as Liquidnet ’ s new issue trading platform , buy-side use of central limit order books in fixed income remains incredibly low . Contingent on liquidity , some quantitative and proprietary trading firms use them for the Treasury markets . However , the process of trying to get hit or lifted on bids and asks doesn ’ t match the majority of traditional long only firms ’ business models .
While buy-side firms are not yet in the business of ‘ market making ’ as such , they are increasingly taking matters into their own hands when it comes to pricing using their desired methods . With new tools becoming available all the time , the buy-side are no longer limited by the traditional methods of making prices and sourcing liquidity , and they know it . As data access ramps up , this autonomy is only set to follow suit as the prospect of a widely adopted order book for more transparent fixed income instruments becomes a reality .
“ It ’ s not beyond the realms of possibility to get to a point where there ' s an on the run investment grade orderbook where the buy-side can leave orders up . It ' s no different to leaving something on AllQ currently with UBS Bond Port or leaving something on Open Trading at a level ,” says Poole .
“ In the next 12 to 18 months , some of the more on the run credit space could be ripe for that sort of trading . Quasi order book , small size , executable , click to trade , the algos will get smarter quickly . The technology will allow for it and then it ' ll be down to confidence in the data .”
“ You ' ve got to be careful because once you reveal that you might be a buyer then the likelihood is there will be an algo out there able to buy ahead of you .”
MIKE POOLE , HEAD OF TRADING , JUPITER ASSET MANAGEMENT
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