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E-trading liquidity aggregation - the buyside view

Pinebridge Investments' Chris Perryman puts forward his view on the necessary steps buyside trading desks must take to ensure they evolve alongside fixed income markets.



The focus for the buy-side fixed income investor has changed, from the constant search for liquidity and the challenges that brings, to dealing with the reality of available liquidity and how to be as efficient and effective as possible in trading it. Even cash only fixed income trading desks need to have both qualitative and quantitative approaches to achieve the goal of best execution in a timely manner. This helps in not just dealing with the liquidity reality, but it also enables better demonstration of best execution that is required by the upcoming regulatory changes (ie. MiFID II).


We are achieving this goal in a number of ways:


  • Using in-house data in a more granular way to find where banks’ niches are, through a better understanding of hit rates, price and frequency of trading. This is not quite but getting closer to Transaction Cost Analysis (TCA), which is still a hard ask for Over the Counter (OTC) markets. Ownership and use of pricing data and trade data is becoming increasingly important.

 

  • Using external e trading and pre-trading systems to find the liquidity on offer. There is currently a large offering of e-trading systems and the challenge for investors is choosing which Request for Quote (RFQ) and Central Limit Order Book (CLOB) systems to use, whilst remaining efficient and effective. The result is that you can end up with too many on screen to manage, however the next evolution of e-trading systems should help to deal with this issue.

 

  • Voice trading is still a feature and will always be used in the execution of the less liquid names and for the present moment, sizeable trades.


In the years ahead, it feels very likely that the focus will move to trying to aggregate the fragmented liquidity created by the multiple e-trading systems, and banks becoming more niche (because of the constraints on capital). Yet another evolution for us to see in the seemingly ever changing environment of fixed income trading and the systems on offer.



About the Author



Mr. Perryman joined the firm in 2009 and, as a senior trader, is responsible for all aspects of team's trading with the focus on emerging markets hard currency markets. Prior to joining PineBridge Investments, Christopher was employed in Standard Bank's Fund Management division for almost five years where he was trading emerging markets hard and local currency, FX and credit default swaps. Previously, Mr. Perryman worked as a portfolio analyst in the credit team of Morley Fund Management and prior to that was employed by the London Stock Exchange. Mr. Perryman holds Investment Management Certificate and a Diploma in Technical Analysis.


Mr Perryman will be speaking at our upcoming 4th Annual European Electronic Bond Trading Forum on 12th & 13th September in London.  For more information please visit our event page, or you can secure your place here.

This content is provided by Euromoney Seminars for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.