In the wake of the Covid-19 pandemic, electronification within the fixed income trading market has been accelerated. Adapting to this new environment means the way business was traditionally carried out has changed. What are some of the key developments and which changes are here to stay?
Over the last few years, the financial services industry has dealt with its fair share of challenges. Firstly, there was the introduction of MiFID II, as well as Brexit, followed shortly by the coronavirus pandemic. These events had a knock-on effect on fixed income trading as the market tried to keep pace with change caused by uncertainty.
The pace of digitisation within the fixed income market, as a result, has accelerated as businesses looked to streamline processes and reduce costs where appropriate. Technological change became a necessity.
The move to remote and hybrid working models during the pandemic, as one example, meant there had to be a shift in how liquidity was sourced for asset managers, how traders interacted with their colleagues, and how the banks themselves interacted with clients. Although there were several obstacles, many positive developments arose out of these changes, with technologies such as mobile trading apps leading the way.
The latest JP Morgan FICC e-trading survey – which surveyed over 700 institutional and professional traders – revealed mobile trading applications will be “the most influential” in 2022. A third of survey respondents expected mobile trading to shape the market most heavily over the next 12 months, followed by blockchain (25%), and artificial intelligence and machine learning (25%).
This shift in dynamics signals that while electronic trading and increased competition may have been born out of the circumstances, they look likely to be sticking around. “They are the future,” says Andrew Morgan, president and chief revenue officer of TS Imagine – a US-based software provider for the financial services industry.
The future of e-trading
Designed to reduce costs, operational risk, and human error, in addition to making people more productive and efficient, e-trading technology has elevated the decision-making process.
TS Imagine has over 20 years of experience working with workflow automation, liquidity aggregation, and networking. It is leveraging technology to their advantage by honing in on the skills acquired by being pioneers in their field.
“The fixed income industry has got to the point where you have the necessary critical mass in the combination of the appetite of individuals that are driving the decisions, the innovation within the industry to make the liquidity sources available – whether that’s the sell side or the venues themselves and the tools the buy-side have available to them – and analytical and data products empowering the users to make better informed decisions,” says Morgan.
TS Imagine’s platform – TradeSmart –fully integrates buy-side and sell-side workflows. The SaaS platform allows users to exploit trading opportunities and respond more competitively than before.
Algorithmic trading has proved popular amongst clients and Alexis Sainte-Marie, head of fixed income product management at TS Imagine says that it is driving automation on the buy-side, allowing clients to focus on the high touch business.
On the sell-side he says they are seeing more algorithms pricing. “The trend is definitely upwards on the algos,” he says. By using data to their advantage, traders can make more informed decisions and this digitisation of data is an area where TS Imagine are excelling.
“I think that data really is the critical ingredient there in terms of providing the necessary visibility into past engagements with different market counterparts, and derive insights on the investment process for our clients,” says Sainte-Marie.
He goes on to note that, currently, regulators are shining a light on the fixed income market which will likely increase the level of scrutiny around outcomes. “I think that the need for high quality normalised data to empower decision making is only going to be greater” Sainte Marie says.
To thrive and navigate this new landscape utilising data is essential, and as Sainte-Marie states “this is the number one requirement for fixed income traders in order to succeed in this new world.”