The View on Liquidity panel at FILS US 2023 had some stern words on the urgent need to integrate better protocols directly into workflows – with technology crucial to accessing better liquidity faster and more efficiently.
Trading protocols and liquidity tools are crucial to access liquidity in these volatile market conditions, according to a panel of experts speaking at FILS US 2023. With new protocols emerging and evolving however (see our report on trading protocols for more details) it’s crucial to be able to integrate these tools into a trader’s day-to-day workflow in order to reduce the level of noise, maximise efficiency and improve decision-making. But in illiquid markets, traders still tend to revert back to the old ways when under pressure.
“Why do traders still go to the phone? Block size trades and illiquid securities,” said Miguel Cota, VP and head fixed income trader, American Century Investment Management. “But there are other ways to trade illiquid securities. Dark pools, anonymous workflows – it all depends what type of market impact you want to have.”
Workflow integration, however, is crucial. “Within three to five years, there will be ways to lead market participants to one workflow over another based on the criteria and the type of trade they want to get done.”
Robert Simnick, senior fixed income trader and credit portfolio trade specialist at Invesco, agreed – but thinks that right now, there needs to be some improvement. “How is the buy-side interacting with liquidity?” he asked. “85% of us are still using RFQ workflow on a regular basis. For 60% of us, it’s our own way of providing liquidity. But when we send it out, the majority we get back from the sell-side are algo-driven. We need to turn that around.”
The main challenge is the constant demands on traders’ time and attention, which necessitates a streamlined workflow. “Traders are trying to do so much right now, they really need solutions that plug easily into their workflow,” agreed Simnick. “Auto response, adaptive execution – things that tell us when to put an RFQ out. There are a lot of great ideas out there but they have to fit into the workflow that we have.”
“The continuous demand for data is nothing new,” added Patrick Whelan, managing director, global head of FICC digital markets at JP Morgan. “But in our world, RFQ alerts, pop-ups, messages, emails, it’s constant. You need to be able to focus on the pieces of your work that are most value-add. Having the right analytics at the right time to be able to do the things you need to do, embedded in your workflow so you don’t get distracted or have to go to another screen to look at them, is crucial. We need to do a better job of getting those analytics in front of people at the right time.”
But there is a cost element (isn’t there always). Jason Quinn, chief product officer at Trumid, points out that nice-to-have isn’t always possible, especially for the buy-side – and that’s where venues can step in to play a role.
“If JP Morgan wants to connect directly to a client, how can they do that and what is the distribution value to keep that cost contained?” he asked. “We are a hub, we have 740 institutions on board and direct dealer connectivity.”
But again, the technology isn’t always there to underpin the trade, and that can be frustrating. “Imagine going on OpenTable and seeing all the reservations available, but you still have to pick up the phone to book the table you want,” said Quinn. “We need to connect that data to execution. The infrastructure to support the quantity of data that comes through those pipes is very complex to run, which is where venues can help.”
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