Fixed-income traders of the future: Solutions to improve workflow
This is a new era for fixed-income markets. With the growth of electronic trading and continued discussions on Mifid II that push the boundaries of price discovery, best execution and transaction cost analysis, it is no surprise that the market is searching for new tools to increase efficiency.
The diversity of debt instruments in fixed income certainly adds to this complexity. High-yield euro credits, for example, trade quite differently and exhibit dissimilar liquidity profiles to a U.S. Treasury or European government bond.
In this post we will go over some of the latest developments that will play an essential role in improving workflow efficiency for the fixed-income trader of the future.
Workflow efficiency part I: Pre-trade
Axes are an important part of the pre-trade liquidity information flow, but sending and receiving them whilst maintaining accuracy has at times been a challenge due to the many different ways of compiling, sending, updating and storing the information.
How then, can the axes be stored, viewed, analysed and used in the most efficient manner? Purpose-built functions now exist solely to collate this data, allowing traders to identify market-sector specialists, reliable sources of liquidity and probabilities of execution. These tools thus markedly improve efficiency and can be used to spot trends or opportunities that would otherwise take a greater amount of effort to discover (or even be missed altogether). Moreover, the considerable improvement in accuracy that these tools create can noticeably aid the circulation of liquidity that the market is currently looking for.
Workflow efficiency part II: Execution management
The concept of EMS (execution management systems) is already well-cemented in the equity world, but less so in fixed income. The trader of the future, however, is also looking for the most efficient ways to manage their execution from a central place whilst simultaneously transitioning to trade across a greater number of asset classes. There are a number of advantages to this, namely:
- A reduction in the dispersion of critical market information (i.e. axes/runs)
- Improved liquidity sourcing through execution data, brokers and the overlay market
- Increased price transparency achieved by customised market depth
- Greater trade execution capabilities and broker connections
- Reduced operational risk through STP (straight-through processing)
Using a framework to direct and supervise the entire trade is key. Extensive trade-decision support capabilities help traders to find liquidity, execute trades across multiple asset classes and ensure all is fully compliant.
An EMS is capable of eliminating multiple interfaces, disjointed workflows and order-staging concerns inherent when utilising different execution platforms. Increased integration with portfolio management tools also allows for better communication between portfolio managers and execution traders whilst also giving the ability to monitor order status in real time.
Furthermore, regulatory scrutiny is set to increase substantially as MiFID II rapidly approaches, and the need to achieve and prove best execution even when liquidity is scarce is proving to be a challenge for fixed-income market players. With that in mind, combining analytics, price discovery and execution with the intention to solve some of the more pressing questions arising from this new environment can be extremely helpful.
With a more robust, continuously-evolving solution, the outlook for the fixed-income traders of the present and future can certainly be brighter.