Wall Street Letter VOL. XLVI, NO. 7 - July 2014 | Page 9

JULY 2014

MARKET STRUCTURE

Fixed income mart
ripe for widespread
electronification
Broader adoption of electronic trading capabilities for trading in fixed
income securities may take place
more quickly than expected based on
current market conditions, according
to comments from industry executives at the Sandler O’Neill + Partners
Global Exchange & Brokerage Conference held in New York City.
During a June 4 panel discussion
on electronic fixed income trading,
Supurna VedBrat, a managing director at BlackRock, told attendees at the
conference, which was also broadcast over the internet, that market
evolution typically occurs due to
technological advances, a regulatory
mandate, changes in market participation or a big market event.
“If you look at the fixed income
market today, all four of these are
in play. So if you talk of change and
electronification, the market is as ripe
as it will be,” VedBrat said.
She noted momentum will build as
soon as there is a mindset across the
buyside to move to a more electronic
model due to significant workflow or
trading efficiencies.
In response to a question about determining whether to participate on
electronic trading platforms offered
by new entrants, VedBrat said BlackRock makes participation decisions
based on the availability of liquidity
on the platform and participation by
its counterparties.
“For the market to evolve constructively you need the buyside
and the sellside at the venues, so we
have very constructive discussions
with our sellside counterparts about
venues,” she said. “We’re not afraid
to participate with the new entrants
as long as we are able to bring part of
the market with us.”

TRADING FIRMS

Buyside SEF participation hampered by tech,
uncertainty

A

lack of certain technological capabilities and ongoing regulatory uncertainty is hampering the adoption of swaps
trading via recently minted swaps execution
facilities (SEFs) by buyside firms, according
to comments from buysiders during an open
meeting held by the CFTC June 3.
The CFTC’s Technology Advisory Committee met to discuss a number of issues,
including SEFs and the lack of buyside
participation on the trading venues.
Wendy Yun, managing director at Goldman Sachs Asset Management, said while
the firm supports the goals of the agency,
including its intention to increase pre-trade
price transparency, she said the firm also
has to consider its needs when considering a
new venue.
As an example, she noted that while a SEF
can declare itself ready to offer trading for a
particular type of swap contract, requiring
buyside traders to enter trades and allocations manually telegraphs a lack of readiness and inability to support the needs of
buysiders.

“From an asset manager’s perspective,
they need to make sure there is seamless
integration for our order management
system so we can get trades to the system in
a systematic and efficient manner,” she said.
Without that, the entire process can suffer
from added latency and increased potential
for trader errors, Yu added.
Michael O’Brien, director of trading
at Eaton Vance, added that the other big
hurdles are related to the actual rules that
firms need to comply with.
He noted the rulebooks for SEFs are difficult to understand and but also don’t address the model buyside firms have followed
with respect to swaps or derivatives trading,
which has been as an indirect participa