How Automation is Unlocking Value in Emerging Markets While Clients Retain Control

While automation was once considered better suited to trading developed markets, today is a different story. As technological innovation continues to permeate emerging markets, clients are increasingly embracing automation; recognising both its tangible benefits and the new opportunities it unlocks.

Tradeweb's rules-driven automation tool – Automated Intelligent Execution (AiEX) – is helping clients to lower risk, boost efficiency and drive value creation across the emerging markets. By working with clients to fine-tune their pre-programmed execution rules through over 100 parameters, the solution can be fully tailored to each trading strategy and clients are still able to retain total control over every order.

This frees up time to focus on transactions requiring a higher touch approach while ensuring clients have complete control of the automated trading process and its outcome. After all, automation is there to enhance human experience and expertise, rather than replace it. 

Strategically tailored automation

The adoption of automation typically follows a clear progression. It is first used with the most liquid assets in the most commoditised markets. Having proven its value, it is then developed, tested and adopted in increasingly less liquid markets.

This trend, originally seen in developed markets, strongly suggests that automation will grow exponentially in emerging markets as technology, data and confidence develop together.

Tradeweb is uniquely positioned to support this shift, having led the way in automating emerging markets through our AiEX solution. AiEX allows firms to capitalise on strategic trading opportunities and increase reactivity to market conditions with greater speed of execution.

Features in AiEX – such as connection to Tradeweb’s interdealer liquidity pool and smart dealer selection – are driving increased automation to larger ticket trades, just as they have in developed markets.

Fine-tuned automation in emerging markets

Emerging market bonds are often highly idiosyncratic, with notable distinctions between hard currency and local currency instruments. These differences are further complicated by varying levels of liquidity across countries and regions.

For example, the liquidity universe for a Gulf Cooperation Council (GCC) contrasts sharply to that of Sub-Sahara and Africa-issued bonds. Similarly, the universe for a Turkish (TRY) bond compared to a Mexican (MEX) bond is different, and the bid-offer spreads in those markets are not comparable.

In local currency, automation can excel for both fund rebalancing (month-end, NAV) and for clients following more systematic strategies and looking for relative value or rate arbitrage.

Whereas in hard currency, automation is geared towards smarter dealer selection and sourcing liquidity in harder-to-reach credit markets.

A high level of control is therefore required to ensure automation criteria are based on these idiosyncrasies, which are far more granular in emerging markets.

Complete control of execution rules

AiEX provides complete control in multiple ways. Order acceptance controls allow clients to define how they validate orders for execution using parameters such as security, size, country and maturity.

With parameters for liquidity providers, institutional investors can send orders to select specific counterparties and/or via Tradeweb’s AllTrade® – our all-to-all network that expands liquidity for clients through connected pools. They can set the number of dealers to put in competition, dictate providers to be included in every negotiation, specify rotations and more.

Evaluation controls allow traders to indicate or confirm response time, number of quotes to receive and acceptable price levels. Target levels can be submitted along with additional price evaluation criteria.

Compliance is also in clients’ control: they can elect to include rules that automatically stop erroneous orders or behaviour and enforce their best execution policy.

Assisted trading puts clients in the driver’s seat

It is important to consider AiEX as assisted trading rather than as automation in its strictest sense. The crucial distinction is that, in the case of assisted trading, users remain in control. Not only do they configure the execution rules, they can also monitor and interrupt any activity.

Traders can think of themselves as the driver of a high-performance car. AiEX represents the systems and software that enable them to drive smoothly, safely and fast. ABS, cruise control, lane detection, crash avoidance and a host of other tools are constantly analysing the data and metrics for them.

This is not a driverless vehicle – they are always behind the wheel. They may be able to focus their attention elsewhere, but they are always present, able to monitor progress and retake control at any time. The human touch is essential throughout, and relationships with dealers and key counterparties remain as important to success.

Accelerating confidence in automation

Tradeweb’s long-standing pedigree in automation across both developed and emerging markets is reassuringly consistent. Specifically in the emerging markets, we see clients beginning their automation journey gradually, building experience and understanding. Confidence comes quickly, and once value is proven, they actively explore how to extend automation and its capabilities.

The electronification of emerging markets trading is moving rapidly forward, as are technological innovations, including the use of AI. Increased trading generates data that can be used to deliver competitive advantage, creating a virtuous circle of insight and success. The combination of these factors is driving a shift in attitudes towards automation, with forward-facing firms exploring new ways to take advantage of increased liquidity.

But this is not a journey that clients need to navigate alone. Tradeweb is committed to partnering and collaborating with both buy-side and sell-side traders, leveraging our deep data insights and market expertise to meet their evolving needs, uncover opportunities, mitigate risk, and drive long-term value.

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