A hopeful evolutionary mindset
Key findings from: the 9th Alpha Trader Forum Fixed Income London June 2017
Comparing the buy-side discussions at the 9th London Fixed Income Alpha Trader Forum (ATF) in June 2017 to the inaugural Alpha Trader Forum debates in June 2013, the current tone is progressive. Electronification of the buy-side trading desk has become a standing topic on the agenda and the debate is now about to what extent the buy side find matches in the new initiatives and further use cases utilising technology. Technology is already proven successful for internal matching and the buy side are hopeful to be able to streamline primary issuance with the help of technology in the future.
Furthermore, the buy side are now debating what other interesting trading protocols would be useful, how they can minimise getting ripped off by incremental technology fees and hopefully aggregate liquidity information to a single screen in the future as there is not a single liquidity initiative that meets all trading requirements.
The aggregation subject is a major area of frustration for the buy side and better EMS and OMS solutions are also needed to automate the upcoming MiFID II reporting.
Evidently there are growing possibilities to evolve the fixed income trading desk towards more automation and higher levels of predictive machine learning at least for investment grade government bonds. We are already in an era of transformation where best of breed buy-side traders must stay well-informed and avoid complacency to remain competitive in the job market.
Most of the buy side are looking at arranging direct ARM and APA relationships to satisfy all of their MiFID II reporting requirements.
A major concern for the buy side is currently how to automate the reference prices into their trading rationale as in most cases this is an extremely manual and time-consuming process. The buy side debated the capabilities within various technologies to automate this process. With incremental data as of January 2018 the buy side hope there will be better basis to leverage technology for this process.
K&KGC presented previous research findings of suggestions made by 32 senior buy-side heads of trading on how to prepare for a prospective client requesting evidence of how the buy-side firm traded according to their execution policy.
Unbundling of fixed income cash trading is a frustrating exercise to satisfy theoretical regulatory requirements where there are no foreseen benefits for the end client and will add administrative burden for the buy side and sell side. One valuable proposal is that the sell side should publish their “no value” research for unrestricted public consumption to prevent unnecessary fees and administration. Most buy side are planning to pay for fixed income research from their P&L.
With the emerging development of bond trading technologies and soon more access to data, we are all attentively following the development and adoption of useful fixed income Transaction Cost Analysis (“TCA”). As mentioned a number of times before, useful fixed income TCA is today classed as a luxury mainly afforded by well-resourced trading desks.