TradeTech FX Europe 2023: Data and liquidity are key considerations when it comes to merging asset classes, panellists find

Panellists discussed the different approaches when it comes to merging asset classes, debating whether a single EMS does in fact make the most sense when it comes to multiple asset trading.

Delving into the set-up of multiple asset trading desks, panellists highlighted the pros and cons of each methodology and the key considerations to bear in mind as the market develops – notably reflections as regards data and liquidity.

The buy-side panellists discussed the different schools of thought employed by their institutions in terms of how their desks were organised, highlighting the key considerations from each standpoint.

While APG Asset Management is currently in transition from multiple EMS towards a single EMS – one asset at a time, futures having already been shifted, equities in the pipeline for this year, and moving onto other OTC products in 2024, Manulife Investment Management has retained a multiple EMS for each asset class set up, using all the same EMS systems for each asset class and the same OMS across all their trading centres. 

Delving into the reasonings behind each approach – whether that be a multi or single approach – how decisions were reached, and the pros and cons of both sides were discussed. 

Speaking to the reasoning behind APG Asset Management’s move to a single EMS, senior trader Sunil Patil asserted that a single EMS simply makes sense when it comes to multiple asset trading.

He highlighted several complications which arise from multiple EMS’s, chief among them the complexity which arises from multiple data sources: “As you move onto more and more data analysis – using that data to enhance trade – you have multiple data structures and ways to analyse data which is complex to assimilate.”

Patil further addressed the empirical side of things when it came to reaching the decision to shift, specifically the difficulty of having three separate screens in practice, as well as the opportunities presented by technological advancement.

“There is new technology which the new EMS have which makes it very easy to trade two asset classes in parallel. If you have for example bonds and FX, it’s very easy to trade that in a single EMS, and the same with equity and FX also.”

James Barnett, multi-asset trader at Manulife Investment Management, addressed the fact that there are currently no plans to move in that direction.

Barnett agreed that there were drawbacks to a multiple EMS approach in terms of efficiency, however he stressed the fact that liquidity is of the upmost importance.

“You have trade-offs where you have some execution platforms that offer a genuinely differentiated point of liquidity and so if you strip that away and move to a single EMS platform you then lose that.

“So then it’s a question of deciding where that inflexion point of your traders’ time and operational efficiency offsets that liquidity gap that you need to meet.” 

Although Barnett confirmed that though it was a question the business had looked at but chosen not to focus on for the time being, the idea that there is a potential point of critical mass which could be reached could mean that this would perhaps need a re-evaluation.

Andy Mahoney, managing director EMEA at FlexTrade highlighted that there were other paths to consider when looking at desktop real estate aside from large migration projects.

Mahoney agreed with Patil in terms of data being at the forefront of people’s minds, and the key driver for those looking at multi-asset systems, explaining: “If you can get one consistent data set that’s cleaned in one way in one database, normalised […] you save a lot of time and issues with data ownership as well.”

In terms of the functionality of individual EMS’, he suggested that where to draw the line between a trading venue and an EMS was a key discussion point, asserting that fundamentally an EMS can exist without a trading venue and vice versa.

“ESMA and the FCA have both created consultation papers around what constitutes an EMS and what constitutes a trading venue. From a fundamental perspective, many of the trading venues have their own EMS and decoupling those two has proved challenging for the whole marketplace.”

Elsewhere, panellists addressed transition management, looking at the realities of ensuring optimum performance – including ‘seamless’ connectivity with OMS – and what is most important to bear in mind when working with external parties.

“It’s challenging […] at the end of the day it’s making sure communication when you’re onboarding a platform is crystal clear in terms of what expectations are of what you’re trying to feedback,” said Barnett, who also highlighted the importance of the beta-testing phase.

Speaking from FexTrade’s perspective, Mahoney made clear the importance for OMS and EMS providers to talk and work with each other: “It’s common these days to have extensive partnerships with system you work alongside […] which just means that the communication layer firms shouldn’t need to worry about,” asserting that the responsibility of defining the key aspects and working with OMS’s is on their shoulders.

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