Automation: A holistic view of buy-side trading
Bloomberg Professional Services
Asset managers have seen huge efficiency gains from the automation of their workflows. Electronification has boosted productivity and led to a reduction in costs. That has been critical in a trading environment where increased competition, especially from passive products, has compressed fees and narrowed margins for buy-side firms.
The beneficial impacts of this transformation have been seen clearly in the changing dynamics between portfolio managers (PMs) and their traders, who now need to work more closely with each other. No longer are traders’ roles focused purely on execution; technology has enabled them to play a central part in the management of portfolios, working as implementation specialists who consult closely with their PMs on broad goals.
Those changes have been most visible in the equities space, but they are also permeating the workflows of other asset classes. Fixed-income is now seeing more automation, with electronic trading of both investment grade and high-yield debt almost doubling in the past year to about 60% of traded volumes.
But leveraging data and analytics at scale to achieve such gains can be challenging. It can involve large capital outlays in expertise, infrastructure and data. For many firms, legacy technology stacks are also mitigating against the sort of joined-up workflow patterns that modern buy-side firms are looking to adopt.
The most elegant solution is to engage a technology partner that combines expertise, tools, and data to implement a holistic approach to trading at scale.
Unifying a fragmented world
Digitalization is liberating asset managers from traditional workflows that are conducted over often fragmented technology stacks that are prone to conflicts and human error as information is moved from one context to another.
In these scenarios, PMs and their traders typically work on different solutions and, lacking a common context, can find collaboration challenging. Much of their routine daily activities are carried out individually and for the trader often without portfolio context, running the risk of inefficiency or missed opportunities.
During a simple switch order, for instance, a PM would be able to model change to a portfolio only after engaging in an extended back-and-forth exchange of research, market color, and guidance with their trader. The trader would eventually be able to work up an order, trying to keep the PM informed of progress across manual communications channels.
The cumbersome nature of this process creates an artificial wall between the PM and trader, making it difficult for them to stay aligned as they implement their portfolio objectives. At a time of liquidity fragmentation and more intricate goals, this inhibits scale and efficiency.
It’s unsurprising, then, that a recent Bloomberg poll of buy-side market participants found that 65% of respondents said automation was the single-most important change that would strengthen their order and execution management systems (OEMS).
Collaboration and integration
Bloomberg is meeting this demand. Through the integration of its powerful suite of tools, it is enabling the buy side to streamline trading workflows, bringing PMs and traders together in a mutually supportive collaborative decision-making environment.
This schema is built on four pillars that Bloomberg considers essential to a holistic approach to trading.
The first is the provision of a rich intraday portfolio view, such as that offered by Bloomberg’s recently launched Portfolio Management Workspace (PM <GO>). This unifies PMs and traders by giving them real-time, all-day visibility into their portfolio positions and providing reference to how closely they are tracking their goals. It provides key portfolio and risk metrics alongside analytics and offers data overlays that give further colour on topics such as the portfolio’s ESG sensitivity.
The second pillar of a holistic trading workflow is the supply of market liquidity insights. PMs and traders need a concurrent view of what is available to them and how they can push their portfolio forward. This should be tied with analyst research, ESG metrics and insights, as well as real-time liquidity and market inventory. Bloomberg has a range of pricing and analytics tooling that feed this pillar, including the IMGR inventory and pricing function and NIM for new issues.
Dynamic portfolio implementation tools, such as PM, make up the third pillar. These empower traders and PMs to easily adjust their models and interrogate the impacts the changes might have on their portfolio positions. This substantially enhances and accelerates the decision-making process.
With orders ready to be placed, the final critical ingredient of a holistic approach to trading is having broad access to markets and innovative tools, including Bloomberg’s fixed-income execution management system (TSOX), the QMGR pricing discovery feature, and its automated trading tool, Rule Builder (RBLD). With these in place, firms can take advantage of liquidity across asset classes and, utilizing feedback from workflow participants, streamline their time to market.
Pulling together
Through Bloomberg’s suite of trading tools, buy-side firms can build automated trading workflows that provide real-time decision support capabilities based on rich data and analytics, all of which is tied to industry-leading order and execution engines. In this way, Bloomberg enables the full implementation of a holistic approach to trading that puts traders and PMs closer together so that they can make high-quality portfolio decisions faster and better.