Fixed income, currencies and commodities (FICC) revenues in the first quarter this year have plummeted 49% since 2011, amid the slowest start to the year since the financial crisis.
As firms battle with increasing costs and declining revenues, fixed income headcount reduction has become frequent news in the industry. However, panellists agreed personnel are more important than ever for the future of the bond trading desk.
Ensuring trading desks have people in the right roles with a multitude of skill sets providing different perspectives, is now considered imperative when dealing in a fragmented market place.
Irina Isaakova, vice president at TD Asset Management stressed the importance of human capital to delegates at the event in Boston.
She said: “I need to make sure that I have the right people, with the right skillset, in the right roles - I am also a strong believer in specialisation.”
John Adam, global head of product strategy at Portware, echoed Isaakova’s thoughts:
“If you can be different in your thinking, you will find yourself with huge opportunities. Having a diverse team with a different perspectives means you can act immediately taking into account everyone’s view on the team.”
Bad Bond Data
Trading desks are now challenged with obtaining and consuming data, which is described by panellists as ‘imperfect’.
It was agreed on one particular panel, that imperfect bond data and the need to analyse it, is significantly reducing a trader’s ability to decide quickly on whether to execute a trade.
Buy-siders say ‘holes’ in bond data are preventing traders from being ‘opportunistic’ when executing trades.
Zack Ellison, director of US public fixed income at Sun Life Asset Management, explained that when looking at bond execution, immediacy is key.
Ellison noted that banks with their own fixed income indices are “wasting valuable time”.
He said: “The biggest problem is bad data. If the data can get cleaner and your best people are not spending their time analysing that data, you can then think of the bigger picture.”
TD’s Irina Isaakova added: “Traders are not dealing with perfect information, so focus and attention to detail is needed to analyse the information and make decisions.”
Another panel which delved into the effects of MiFID II on fixed income, raised concerns about the level of ‘technological resources’ available at regulators to handle the influx of data, post implementation.
Mayra Rodriguez, compliance expert and principal at MRV Associates explained: “It’s a learning curve for the regulators, and they are learning they don't have the technological resources to keep up with the market.”
Firms must implement MiFID II by January 2018, and there is an industry wide consensus that the rules will likely bring ‘unintended consequences’ to fixed income.
The recent Brexit vote in the United Kingdom has further complicated matters since the conference took place. Even before this, the industry was visibly worried about the implications.
Increasing regulatory pressure amid slowing liquidity and an overwhelming amount of initiatives all claiming to “solve” such problems, could see the themes from this year remaining prevalent at next year’s event.
It’s clear that connectivity, which was perhaps the most dominant theme at the conference, could be the answer, but the market has yet to decide which “connections” will prove the most valuable.
After all, if standardised connectivity is achieved, a more established bond network could lead to an easing of regulatory pressures and simplified methods of sourcing liquidity.