[ B I G I N T E R V I E W | L A U R A - J A N E P U R N E L L ]
two reasons . Regulation post the global financial crisis altered bank operating models and reduced balance sheet capacity . Secondly , major advances in technology and data science have greatly influenced not only the role of trading , but the entire investment decision making process , with increasing reliance on electronic trading . I ’ ve witnessed a rapidly evolving landscape , which means that today ’ s trader must also proactively evolve to keep pace and stay ahead of the market curve . Adaptability is key .
Today ’ s trader needs a strong comprehension of how the market works , as well as the ability to effectively navigate and aggregate fragmented liquidity - especially with the number of new alternative liquidity providers and platforms , and during increasing bouts of volatility . Being versed in technology advancements , the ability to use algos and analytics , and combining this with an understanding of sensitivity of pricing is important . We ' re seeing a lot of young professionals joining trading teams with extensive coding and computer science skills and are comfortable with new algorithmic technologies and AI . It ' s interesting to see the combination of traditional and nontraditional skillsets proliferating trading floors and creating the trader of the future .
What key changes are driving the modernisation of bond markets ? Bond markets have been evolving at a rapid pace for a while . What has got us here are similar dynamics I spoke to in relation to a change in trader role and will continue to drive modernisation forward .
As mentioned , regulation has redefined bank balance sheets and we ’ ve consequently witnessed a change in the composition of the traditional brokerdealer community . When I first started my career , banks were viewed as being the main liquidity providers . Over the years I ' ve seen an expanded set of counterparties emerge , with the rise in alternative liquidity providers , utilising algorithmic technology and providing pricing via electronic platforms .
Continued advancements in technology is allowing us to move to a multi-asset class trading environment , where data and technology are at the forefront . The everchanging macro and regulatory environment are also accelerating modernisation . We ' re at the end of the great moderation , with higher volatility , persistent inflation , and elevated interest rates . Against this backdrop , we are moving from a depth to a breadth market , creating a need for new technology , capabilities , and ways of thinking about fixed income risk .
How is automation and the use of algos shifting the landscape in fixed income ? I think the biggest shift resulting from automation has been the deployment of index and basket instruments . We ' re seeing a significantly increased use of bond portfolio trading and fixed income ETFs , where sophisticated pricing tools are not only enabling us to trade these products with greater frequency , but are the differentiator . This trend is also reflected by the e-trading desk composition at banks , where bond algos , portfolio trading , fixed income ETFs and credit index products are now regularly combined .
Portfolio trading has been especially impactful for credit markets where liquidity can be challenging . Sell-side dealers can facilitate numerous individual bonds trading simultaneously , enabling us to access risk in an aggregated way rather than on a line-by-line basis , reducing transaction costs for our clients .
Fixed income ETFs are also fast becoming an integral trading tool in fixed income portfolios , with their ability to combine bond trading with equity infrastructure , providing additional liquidity and intraday transparency to the bond market . On the desk , I trade across the broad spectrum of fixed income ETFs , from rates to EM exposures , and I ' ve witnessed a substantial increase in usage . We estimate that UCITS EUR-denominated credit ETF volumes rose 25 % in H1 2022 versus H1 2021 industry wide , while underlying IG and HY bonds volumes were flat during the same period .
How can technology , automation and pricing tools act as a differentiator ? At BlackRock , we operate a centralised trading desk model with a global footprint . This allows us to trade
58 // TheTRADE // Q3 2023