Primary markets are undergoing a gradual digital transformation, and the fixed income world is no exception, however whether the buy-side will fully digitise their workflows was up for debate at the FILS conference in Amsterdam.
During discussions, Olivier Dermaux, executive director, fixed income strategy at S&P Global Market Intelligence, highlighted that over the last two decades, syndicated bonds have grown to be increasingly processed through electronic rails, and over 50% of European bond issuance books stem from electronic sources.
Despite this, for Cathy Gibson, global head of trading at Ninety One, although the technology exists, buy-side workflows are still largely archaic and fragmented, delaying the possibility of a full digital overhaul.
She said: “We’ve been talking about upgrading and making electronic primary market since I started my career more than two decades ago. It hasn’t happened, not from a buy-side perspective anyway. So is it going to happen anytime soon?
“The buy-side workflow is as archaic as it was when I first started in the industry. You have multiple different book runners. We have to contact each and every one of them, adjust our limits as mid swaps, etcetera. It’s inefficient.”
In addition to this, Gibson added that for the buy-side, its not a question of digitisation being possible, but rather, that there is no collective will to make this happen.
She said: “The bottom line is my core belief is that there are vested interests between the counterparties at play. You have large asset managers which are not incentivised to actually make the buy-side workflow digital or electronic. They like the human contact that the primary forces the buy-side to have with the banks.
“And there’s vetted interest between the amount of money that banks make or new issuers make of the primary and that is in the billions every year. So any risk of those players being sidelined or removed from that workflow process is too big a threat.”
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When probed on further pain points limiting the full digitisation of the primary market, both Gibson and Dermaux also recognised that fragmentation also poses a challenge by adding complexity to the ability to digitise.
However, Dermaux also highlighted that despite this obstacle, emerging partnerships and integrations between the buy-side and OMS/EMS providers, such as Charles River and Bloomberg is increasingly unifying workflows, and driving a push towards digitisation.
“There’s a real appetite for as much of a straight through processing method in primary as possible. You’ve seen through the partnerships that integrations have been done effectively. Although there’s fragmentation, which is a huge frustration in the market, I believe that there will be a model where through partnerships across the vendor space, you’ll be able to do all your primary. You’ll see all your deals in one place and execute it straight into the book electronically.”
Although the buy-side may not be open to full primary market digitisation now, increasing discourse on this possibility is gaining traction across the industry, and the space is set to be one to watch in the coming months and years.