FILS 2022: Execution Management Systems still need to evolve further to meet needs of the fixed income market

According to panelists, EMS’ need to do more than replicate what’s been done in the equities market to truly provide value in the fixed income space.

During a panel discussing the value of Execution Management Systems (EMS) and how they have evolved to meet client demands, panellists shared varying opinions on how they perceive the worth of these platforms to be.

Alex Harris, chief product officer at AxeTrading noted that a lot of buy-side participants do not feel as though they need an EMS, especially if they already have an Order Management System (OMS). “What we’re saying is we understand why you’re in that situation, but realistically the specialty of having an EMS is actually quite critical to your business in the sense that you need to want to stay on top of things.

“We provide that out-of-the-box connectivity and aggregation, which then allows you to keep on top of the market, while also giving you the flexibility to then extend that reach of where you want to execute as well. Because we do the connectivity for you, we put it all in place, we give you that ability to then go out into the market and execute. By having that specialty provider, we take a lot of that off your hands and it enables you to do what you do best, essentially.

Michael Chin, chief executive of Broadway Technology, made it clear that he loves what an EMS can do, however, wasn’t shy to admit that he believes EMS are not necessarily adding a lot of value in the fixed income space. The ideal would be that it aggregates, helps to normalise all the connectivity, all the different venues, the nuances of them – but I think we still have a long way to go for that to really take place,” said Chin.

“I think EMS are very valuable, but specifically in the fixed income space, I think the challenges around the vast amounts of data, hundreds of thousands of bond prices and calculations – today I don’t think there is the right connectivity solution that has come to market. There are few out there, but I think the value add for connectivity is to enrich the flow, analyse and abstract the nuances of the different types of workflows and help normalise so that there is more of a single sort of holistic view of liquidity.

Tomas Zikas, global product manager, fixed income at Bloomberg, noted that the function of an EMS can be categorised into four pillars of core competency. Ultimately, EMS need robust and dynamic integration with the OMS; good information discovery and price transparency; access to liquidity sources and liquidity destinations. In addition, Zikas suggested that an EMS needs to be an X Factor as well. “Essentially, how do you provide an overlay that helps the trader be more effective in their jobs?

“When you put that all together and then you say you need to do all those four competencies on government bonds, corporate bonds, mortgages, money markets, loans, interest rates, etc, it becomes quite a big task. So the OEMS concept is critical because they need to be handshaking really well, but you really want an EMS application that’s really focused on that primary objective which is empowering the trader to focus on the biggest value activities that they need to achieve.

Providing an opposing view on the value of EMS, Karim Awenat, head of fixed income trading, London at Invesco, said: “I don’t really see the huge benefit of sticking another person in the middle to assist with aggregating data.

“I can already aggregate it and all you’re doing is installing something on my computer to slow it down. If something is a decent sized trade and someone wants to show me liquidity, great. And if they don’t want to show me liquidity, they don’t want to trade with me. So at that point, I will use my relationships.”

Awenat also brought into discussion the debate about whether traders should also operate as coders, highlighting that without actual relationships, traders could face troubles. “Ultimately, if you are heavily into your Python programming, when the whole market breaks down and you need to trade with someone, you need to leverage your personal relationships,” said Awenat.

“You need to be able to phone up traditional market makers and say, listen, I know you don’t want to buy these bonds but I need to sell them and you need to make me a price. If you’ve abused that relationship for years because you’re trading purely electronically, they’re going to think, why should I want to extend my balance sheet to help this person out. That’s where I think that personal relationships are more important in finding liquidity because actually, in my experience the trading platforms have done a good enough job for me.” 

In response to this, Harris, did mention that the EMS is there to help the trader to focus on that relationship building by having something in place which allows you to take away the need for you to uphold, put in place code, etc on your own side.

“I think putting an electronic solution in between that can help with the compliance issues as well -showing method execution, showing that you’re targeting multiple places of liquidity when times are good, but also freeing up traders to build those relationships when times are bad.”

Elsewhere, Carl James, global head of fixed income trading at Pictet Asset Management, mentioned that EMS still have to evolve further to truly become valuable in the fixed income market. “Sometimes people confuse what’s gone on in the equity markets and then try to transplant that into the fixed income market, which doesn’t work,” he added.

“The bit I like is best execution analysis and that talks about the process of how you get to that final price – that’s what an EMS should do but I don’t think an EMS is ready for it yet.”

Looking at where EMS need to evolve to cater better to fixed income markets, Chin noted that “when you think about what happened in equities with all the algos and strategies that were being sent out and distributed to the buy-side, having a single view of that in one single tool became very valuable.

“My take on this is dealers and banks have to mature more to building out these direct bilateral trading connections to the buy-side.”

 

 

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