Hatstand takes on the World Financial Information Conference 2015
On the 5th October, Hatstand’s President and Executive Chairman, Adam Bennett, spoke on the technology forum panel at the World Financial Information Conference 2015 (WFIC). Representing Hatstand in ‘The Evolving Fixed Income Landscape: Technology and Market Data Enabling an Ecosystem’ session, Adam discussed how technology and market data can be leveraged to harvest alpha and manage risk in this rapidly evolving asset class.
Some of the key questions and answer points discussed include:
What do you see as the core strategies that the buy side and sell side are employing in order to remain viable in this new market environment and how can technology providers help them?
- It is essential that a cohesive strategy is implemented when trading electronically. One successful strategy is to utilise algorithmic market making to increase BBG rankings. This increase in rankings improves the overall volume of RFQs seen. If coupled with sales intelligence software, this in turn would increase the sell side understanding of ‘virtual liquidity’.
- Pre-Trade transparency is key: Trace; resting orders in a clob; own desk bid/offers in the security; RFQs; velocity. These key inputs must be ready to be digested when pricing a security. This is critical for the buy side as they are not traditional price makers, and may be trading on an infrequent basis.
- Having the ability to easily integrate into a dealer’s trading platform is critical for success, or a third party provided tool that can aggregate various platforms and trading protocols. This is particularly relevant to buy side institutions who are overwhelmed with sell side portals and execution offerings. Many are discounted as they are perceived not to offer any real increase in liquidity. This means that liquidity can be missed.
How are the new MiFID II regulations going to impact screen real-estate and how can data management and data vendors respond to the search for liquidity on multiple venues?
- Best execution in agency and flow models ensures that the client receives the best possible execution, including the transactional cost. If a venue agnostic aggregator were to combine the market prices with the transactional costs (creating a new, more accurate TCA-compliant spread), it may better fit the regulator’s requirements.
- The fixed income dealer will have to offer its client the option of more than one execution venue and will have to prove the quality of its execution. Best execution in the EU is based on price, total cost of the transaction, speed of execution and likelihood of execution. This suggests that a dealer should have more than one execution venue in the screen or at least the possibility to compare quotes and costs between venues.
Given all of the change – new market participants, new trading venues, for example – has the need for electronic connectivity to the market as a whole changed? How? What are firms doing about it?
- Electrification of the fixed income markets continues to play an extremely important part of every firm’s fixed income trading strategy. All firms are leveraging technology for
pre-trade checks and straight through processing, all of which allows them to be more efficient, do more with less, and focus on the higher margin trades.
- MiFID/MiFIR will have a huge impact on algo. Banning ‘fix or kill’ and including a cancelled to executed ratio will impact the way a lot of algo systems feel the market. There will be a requirement to provide documentation of the algo and the relevant software on request. Additionaly, defining a code for the algo and including that identification code in transaction reporting relevant to the algo traders and more which will trigger a review on how algo operates and, in some borderline cases, their role in the corporate strategy.
How can providers of market data and managed networks enable market participants to meet their goals of price discovery and best execution, and conduct transaction cost analysis?
- Many market data providers now provide evaluative pricing. In the US, TRACE allows for visibility of the last trades in a particular security. All of which gives a trader insight on how to price some of the more illiquid securities. Having the ability to aggregate this data, both for pre-trade price transparency and for execution venues is a must.
Electronic trading platforms do not increase liquidity; they facilitate trading and liquidity discovery. The key to any successful trading strategy is to understand how to best leverage these electronic trading tools, along with your traditional voice trading, to come up with a seamless workflow that allows you to automate the lower risk, higher volume trading and focus your attention on the higher risk/higher margin business. This is relevant to all traders and sales staff on both the buy and sell side.
Download the full Hatstand pdf on Electronic Trading in Fixed Income here.
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