Beyond the Office Towers – Bond Trading in 2020

| Credit | Reuters

This article originally appeared on Reuters.com here.


As the pandemic keeps its grasp on the world, corporate bond traders need new ways to remain competitive. Here’s how.


Trading desks have evolved significantly over the past decade, but never as much as they have over the past seven months. With a majority – if not almost all – of traders working from home, figuring out how to do everything that they did in an office remotely has taken center stage. With that mandate, priorities have changed.

“You have to provide tools for the entire trade lifecycle,” Iseult “Izzy” Conlin, a U.S. Institutional Credit Product Manager at Tradeweb explains. “Whether that’s a trader bilaterally processing a trade they’ve done over chat to avoid any operational risks, a trader that needs to trade hundreds of tickets very quickly via an auto execution protocol or a trader needing to move a large block of risk discreetly via portfolio trading tool, traders need choice and flexibility in terms of what’s available.”

Conlin says there are several considerations that every trader should be thinking about as we move into the fourth quarter, looking ahead into 2021. Below, read more about the top three considerations that every trading desk should be thinking about.

Data: Too Much and Too Little
In Conlin’s past experience as a trader – and even now when she visits clients virtually – she says it’s not uncommon to stand or look over a trader’s desktop and be overwhelmed by an avalanche of data. “You see five screens, hundreds of chats, pop ups, alerts, and windows of information,” Conlin says. “It’s so impressive that a trader is able to handle and multitask that amount of information, but ultimately, I really think traders struggle with time and information analysis.”

One way to manage this data and gain better access to what’s missing is by automation -- embrace digital, which is something that many organizations are already doing today. Having tools that include a centralized hub of pre-trade data, actionable axes, inventory and streams, and real-time reference pricing for US corporates can help traders make sense of disparate data and make better decisions on the fly.

Automation: Augmenting Human Execution
Recent research from Greenwich Associates finds “buy-side institutions are using enhanced, integrated technology platforms to expand the reach of their human traders.” According to the report, trading desks are already allocating more than 40 percent of their annual budgets to technology, and that number is expected to grow. There’s a reason for this. Using tools that automate order management, risk reporting, and account management deliver significant cost savings, streamlining and simplifying operations leaving the trading desk free to spend more time with clients.

For example, Tradeweb now offers Automated Intelligent Execution (AiEX), which allows traders to execute large volumes of credit trades through execution rules because it accesses the exact same pool of responders as a traditional all-to-all RFQ, automating the process. This means traders can pre-determine which trades can be automated and which still require high touch servicing.

“We created an enhanced RFQ with AiEX technology, which means no workflow changes or custom development is needed,” explains Conlin. “The client opens up an RFQ ticket the same as they always would, but now they find items on there that are eligible for auto executions and items on there that are just going to be done as a regular RFQ. It makes things so much more efficient for everyone involved.”

Workflow Efficiencies and Gaining Certainty of Execution
Traders are looking for efficiencies elsewhere, too. They are challenged daily to improve efficiency at every step of the trading process – from price discovery to flexible execution to post-trade analysis and reporting. For instance, they need access to real-time price intelligence as well as accurate market data during the pre-trade process. That’s why it’s so crucial to be connected to platforms that offer diverse liquidity, especially during times of market stress.

Traders need to know their trades are executed correctly and with the best outcomes. Adding additional technology offerings is especially important as traders try and do their jobs remotely, Conlin says. “Newer trading technologies and newer protocols that allow for certainty of execution -- things like portfolio trading, auto spotting when the Treasury market is volatile, or net spotting, which is unique to Tradeweb, things that allow for that certainty of execution -- are really needed this year.”

While these anecdotes are compelling, the real proof is on the balance sheet. Tradeweb recently reported that its clients have realized $18.3 million in net spotting savings year-to-date – something that no other trading partner can offer.

Conlin says the risk-reward discussion around any trading technology implementation is an easy one to have. “There’s nothing stopping trading desks from utilizing some of these newer technologies -- especially on the buy side -- and deciding, ‘Does it fit my workflow? How can I use these to make my traders more efficient, make my trading more robust and ultimately, benefit the individual trader?’ It makes the trading desk more competitive and really leads to better returns for the end investor.”

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