Fixed-income trading operations may be as much as 15 years behind equities trading operations, but they are catching up quickly, according to executives in the field who spoke at the FIX Trading Community’s Americas Trading Briefing in New York on April 26.
“All the advancements in technology, the transfer of information and the execution of orders electronically are all in place, so it will naturally progress quickly,” said William Vulpis, managing director and head of KCG BondPoint.
The key elements for improving FICC (fixed-income instruments, currencies and commodities) trading operations are infrastructure, protocols and algorithms. Offering services for multiple asset classes creates more opportunities for firms, according to Benjamin Grizzle, managing director and head of multi-asset platform sales at Goldman Sachs.
“Creating a holistic ecosystem where customers can operate fully, you will pick up incremental opportunities from being not just a specialist, but a ‘stickier’ provider who provides everything,” he said.
Just as firms can handle more asset classes, they can also expand their stock of services, including research tools, order creation tools, order management system tools for pre-trade compliance checks, and execution management systems. Streamlined and consolidated supermarkets of service offerings can produce efficiency and cost benefits.
Still, firms must evaluate whether trading operations protocols are a help or a hindrance. Voice trading tends to be value-added, said Vulpis, and when traders spend more time on a trade that is manual, conducted by voice rather than electronically, the result should be “creating added revenue or alpha,” he said. In fixed-income, protocols dictating whether a trade is conducted by voice or electronically “are probably a bigger hurdle,” Vulpis added.
For firms to think about algorithmic trading of FICC, more infrastructure and development may still be needed, however. “You need to be able to book trades electronically — even voice trades — before you can quote them electronically and get enough liquidity so that it makes sense to have an algorithm,” said Grizzle. “In markets where liquidity is more elusive, figuring out how to bring together buyers and sellers in a way that benefits all market participants is one of the real challenges.”
