Fireside Friday with… Ediphy’s Chris Murphy

CEO of Ediphy, Chris Murphy, tells The TRADE where he sees credit developing in 2023, why he still has concerns around the consolidate tape, and just when we might finally see a CT in Europe.  

Chris Murphy

How has 2022 been for you, and what were the biggest challenges and achievements?

It’s been a pretty flat out year for Ediphy. Whilst many people know us best for the data analytics work we have showcased regarding our advocacy on the consolidated tape, our main business is our fixed income execution offering.  

This year has seen us significantly expand the scope of that service, having recently launched our credit and cleared IRS offering alongside the existing government bond trading capability. It has been amazing to see the warm reception the execution service has received from our initial clients who are getting better trading outcomes from the outset. I’m also incredibly proud of our product and engineering teams who have delivered so effectively on our vision for a data-driven execution experience for the buy side.

How close do you think we are to a consolidated tape, and what are the remaining obstacles?

It feels really close right now. I appreciate how, for many, the subject feels a bit like Groundhog Day, but I think the Europeans have a sensible proposal for the bond tape with deferrals which balance the needs of all market participants. The whole process continues to be held up by the issues associated with the equity tape, however I think a compromise will be made to get that over the line in the coming months.  

Unfortunately, in order to get agreement on the equity tape it looks likely that there will be a number of opt outs for smaller venues and some optionality on payment for order flow (PFOF) for member states which will detract from a certain level of harmonisation, and a fully-fledged pre-trade tape is looking less likely now. Alongside these European developments, the UK Chancellor reaffirmed the UK’s commitment to a CT in his recent Edinburgh announcement, with the FCA already beginning its policy work on the topic, so we are hopefully looking at the prospect of having broad-based transparency on this side of the Atlantic in the not too distant future!

What can we expect from the upcoming Mifid II amendments and when do you think they will be finalised?

It is clear that the post-trade bond CT will have all of the necessary elements in the amendments for a tape to emerge, namely mandatory contributions, the removal of the free after 15 minutes requirement and a more sensible approach to deferrals. Whilst the framework for corporate bonds is broadly agreed, this being the primary focus of legislators from a Capital Markets Union (CMU) perspective, I would like to see a similar updated structure for sovereign bonds, which to date have been a bit of an afterthought. Given the essential role government bonds have in setting the benchmark level of rates, it would be a perverse outcome if we ended up with less transparency there than in credit. I anticipate the outcome on the equity tape will leave nobody happy, which I guess is the expected result when there is no broad consensus.

What role would Ediphy like to play in the consolidated tape and what do you expect for 2023?

Given our strong conviction that a CT is essential for the development of fair and efficient markets, we are working with a number of other industry participants to be involved in the tender process for the bond tape next year. We would hope that the legislation will get done in Q1 or Q2 next year with a tender running before year end. The work we have done already, having been consolidating the data for the last four years, puts us in great shape to be able to deliver an initial offering soon after the mandate is awarded. 

What other areas are you working on, other than the CT?

Our core focus is working with buy side firms to help them streamline and automate their fixed income trading. As anyone in the fixed income markets knows, liquidity is fragmented with different sub-sectors of the market requiring different solutions. This leads to the trading desk having to cope with either fragmented workflows or reduced access to venues which may offer better liquidity. We solve that problem by integrating to multiple venues and liquidity sources and providing a single point of access to everything. Furthermore, as we know from the upcoming developments on the CT and other initiatives, the use of data to optimize execution outcomes is becoming paramount. Our technology is designed to bring all context specific data together to benefit pre-trade, point-of-trade and post-trade processes.  

What can we expect from fixed income in 2023?

With central banks continuing to try to find a path between tamping down inflation and avoiding a severe recession, we can expect to see continued volatility. Various commentators note the ongoing challenges to accessing market liquidity so we think trading protocols will evolve and traders will look for alternative ways of executing their business. In addition, if asset values continue to remain under pressure this will feed through to cost pressures at many asset management firms, potentially accelerating the demand to streamline and automate more of their investment process. With yields having finally returned to more interesting levels for investors, what is certain is that fixed income will remain compelling in 2023 and beyond.