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K&KGC  -  Key findings from the ATFs 2nd half 2018 




Bond trading counterparties

We had an interesting debate and researched in depth about the preferred counterparties for Emerging Markets and High Yield in London, Paris and Frankfurt. There are still development opportunities in how banks are advertising emerging markets flow electronically on platforms. The buyside have identified that the lack of advertised EM flow electronically is partially due to internal sales recognition issues where the EM sales person in the specific country may not get recognised for their efforts if the trade is executed on a platform. 
Reviewing the concentration of preferred counterparties for various types of trades in the bond market, some major brokers are increasingly successful in smaller electronic enquiries due to their investments in algorithmic quoting. 
A few buy-side firms have also started trading bonds directly with electronic market makers for certain types of flow. 



Trading technologies 

There are still growth opportunities for the buyside to leverage and trust all-to-all trading to access buy-side inventory. The buyside have now adopted the use of new types technologies and, based on discussions with the buyside, K&KGC is revising our research methodology to reflect the changes. 
Some firms are still holding off while others are taking a step to implement various auto execution tools for low touch bond trading. The top three dominant bond trading venues offer, or are planning to launch, solutions based on the auto execution protocol but some forward thinking buyside are also implementing Smart Order Routers (SOR) for fixed income. 
The buyside are still waiting to hear of other buy-side firms successfully using fixed income execution management systems (EMS) for bond trading. This could in the future potentially resolve some of the current aggregation challenges for bond trading where the buyside currently have to monitor multiple screens. In addition to limited buy-side budgets, interoperability challenges with legacy order management systems (OMS) are slowing down the adoption of cutting-edge trading technologies.



Data and analysis

The electronification of the fixed income market may have resulted in an improved data quality but all regulatory reporting efforts has not yet proven to deliver anything valuable for more informed decision making. Better enrichened market data is currently mainly available through commercial data suppliers. Improved market data is imperative for getting value out of transaction cost analysis (TCA) systems. Another area that the buyside are waiting to hear more success stories about. 

Thank you to all the buy side who contributed to the ATF autumn roadshow. The 7th annual Alpha Trader Forum Global Summit on  6th – 7th February 2019 in London will be our next opportunity to discuss these and a few other challenges further. Looking forward to see you there!

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