By Shobha Prabhu-Naik.
Information provider IHS Markit claims that buy-side firms trading all-to-all receive 87% transaction cost savings, by trading on Liquidnet Fixed Income.
IHS Markit examined all buy-side to buy-side trades for US and European corporate bonds, executed on Liquidnet Fixed Income during the 15-month period between Q1 2017 and Q1 2018. It was commissioned by Liquidnet to carry out an analysis by comparing cost savings relative to the best dealer price at the time of execution, based on prices available from its own feed.
Constantinos Antoniades, head of fixed income at Liquidnet, noted that there are different ways to look at transaction cost analysis (TCA). Some clients, he said, questioned whether the IHS Markit analysis had factored in size or other parameters that might have affected the outcome of the results, however a simple approach allowed for easier comparison.
“We wanted to have an independent third party conduct a TCA study that uses a simple methodology,” he said. “The idea is to measure the execution quality using an “apples to apples” comparison that is easily understood and can be compared to results from other venues or brokers.”
The global trading network aims to connect asset managers to pools of liquidity for both equities and fixed income. Liquidnet Fixed Income reported more than $20 billion in average daily buy-side liquidity in June 2018, including more than 900 buy-side blocks daily.
Due to the changing nature of the bond market, Antoniades said that the quantifying trading advantages to clients could potentially be very useful.
“The world of corporate bond trading today is very different than that of five years ago,” he said. “There are a lot more possibilities, a lot more avenues for trade and … being able to arm our members with this result is something that helps them tremendously”.
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