Increasing regulatory pressures and bank balance sheet constraints have led to an evolution in the fixed income market over recent years. With MiFID II poised to hit the European market in 2018, market participants had plenty to discuss at the Fixed Income Leaders Summit in Boston this year.
The day before the conference officially started, a ‘platform evaluation day’ was held for buy-siders with the aim of providing clarity on the multitude of fixed income initiative offerings. Incredibly, there are now more than 100 platforms available. This number is increasing.
According to those at the conference, the mass of fixed income platforms is only leading to increased fragmentation making it difficult for bond traders to source liquidity and execute trades.
Speaking at the conference, John Adams, global head of product strategy at Portware said there is “room for innovation but not proliferation” in the fixed income initiative market.
One panel of experts agreed that firms simply do not have the technology budgets to connect to all of these initiatives. It was suggested, therefore, that platforms adopt an all-all nature to ensure companies do not need to connect to multiple platforms to find liquidity.
Chip Bankes, head of trading at Loomis Sayles, explained to delegates that the barriers in trading bonds “come down to nonconformity of connectivity”.
He said: “From a budget standpoint, it’s difficult for Loomis Sayles to link to all of the platforms. An all-to-all platform where all participants can connect is [what is] needed.”
The panel acknowledged that the ability to access the market with consistency across venues and platforms is key for connectivity.
Sam Priyadarshi, head of fixed income derivatives at Vanguard, told the panel certain firms don’t have access to certain markets and “larger clients have better liquidity and therefore better prices.”
A prevalent theme, though, was on improving connectivity between platforms and initiatives to benefit the overall network for bond trading.
Algomi’s chief executive officer Stu Taylor expressed interest in working with fixed income initiative Neptune to improve connectivity in bond markets.
Taylor made the comments to Neptune co-founder Sassan Danesh during a panel addressing liquidity challenges in the fragmented bond market.
He said: “[Algomi] are interested in working with the Neptune group to connect with EMS systems, which makes sense to me.”
Danesh nodded having heard Taylor’s suggestion and told delegates on the panel: “The area we are involved in is looking at that pre-trade data in order to locate counterparties for those looking to trade. There are many liquidity pools and we need to figure out how to aggregate them and make that the focus.”
Moderator of the panel and chief executive at ViableMkts.com Chris White added: “The solutions most dominant moving forward will be those which practice this religion with other solutions.”