It’s no surprise, then, that traders surveyed by Coalition Greenwich want aggregation of liquidity, fixed price commitments on both sides of the market and connection with natural counterparties.
Jim Toffey, CEO of LTX, Broadridge Financial’s artificial intelligence-powered electronic trading platform, believes more needs to be done to allow buyside traders to trade with one another. “It makes more sense to connect the natural buyer to the natural seller; in other words, the buyside to the buyside. But I could be trying to sell $10 million worth of bonds and there’s a buyer who wants them, but we don’t talk, so we never connect the dots.”
To better connect the dots, LTX created what Toffey calls a “liquidity cloud” where – aided by a dealer – the two sides of a deal can find each other.
“In the liquidity cloud, you can share what you are willing to buy and sell with others, and others can too. And then I give you a real time liquidity score based on what you are trying to buy and sell versus what everyone else is trying to buy and sell to give you a natural liquidity probability. Toffey adds, “Every portfolio manager now has access to an independent, real-time view of natural liquidity.”
Unreliable data
The Coalition Greenwich study also underscores traders’ concerns about data, or more specifically, the lack of data. “While the importance of good data cannot be underestimated, traders we spoke to indicated that it can be a fickle friend. This is especially true in opaque markets where there is a lack of pre-trade transparency, misleading interest rates and slippage are commonplace,” the study said.
Respondents to the survey say they lack confidence in fixed income data, believing “about half of it is really reliable.” Additionally, they have accepted the inverse relationship between volatility and usable data, describing it as “normal”.
Traders note that vast amounts of fixed income data have become even less reliable, “with spikes in volatility and liquidity becoming patchy.”
Coalition Greenwich says this means data creates “haves and have-nots” as some market participants struggle to find ways to gather and consume information more effectively and separate the good from the bad.
Overall, the research finds, there is an enduring belief among bond investors that fixed income data will continue to advance over time through improved accuracy and timeliness.
Paranandi notes, “Our clients are really keen to see as much data as possible, especially on a pre-trade basis. For years it was really difficult to get this data to people because it was unstructured, so bringing it all together and generating insights was a challenge. We are now at the point with the development of the technology where we can do that.”
Nearly 40% of study participants indicated that seamless integration with their order management system (OMS) and execution management system (EMS) providers for e-trading platforms is critical to achieving critical mass and real progress toward greater electronification and automation to achieve in trading with corporate bonds.
By embedding pre-trade data into portfolio management workflows and providing traders with flexible new execution protocols within their OMS/EMS, platforms can offer innovation and efficiency within existing workflows without sacrificing valuable screen real estate.
Paranandi says, “Automation technology isn’t just about algos, it’s about enabling people to simplify some of the things they do in their existing workflow. It can be a kind of auto-responder style to manage more complex business rules e.g. B. to allow users to configure the way they use different liquidity pools.”
Looking ahead to the year ahead, Refinitv’s Rickard says that while it’s still too early to predict the outlook for inflation, there are early signs that rates may be peaking. He adds that further rate hikes will not be sustainable, but they will remain volatile, meaning traders need to remain vigilant.
“Despite the significant increases this year, interest rates remain at the low end of the long-term historical range,” he adds. “That’s why desks have to remain flexible in their approach. It seems increasingly likely that many countries will face economic growth challenges this year and next. This increases the uncertainty for medium to long-term trading strategies.”
This requires traders to constantly focus on better e-commerce opportunities with more emphasis on workflow efficiency.
But as the Coalition Greenwich study notes, “How quickly the buy-side reaches this state depends on retailers’ willingness to accept that some of the workflows and methods they have relied on in the past are simply no longer sufficient . and that it is time to try something new.”
©Markets Media Europe 2023
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