Two international securities depositaries (ICSDs), Euroclear and – as of last week – Clearstream, are rolling out access to data for trade settlements in the Eurobond markets, via analytics providers. ICSDs are the record keepers for bond holdings.
This could revitalise pre-trade analytics, by allowing more independent service providers to deliver real data on market activity to clients, without being tied to a trading venue, in an easily consumed format.
Getting access to trading data in bond markets is challenging. The DESK has tracked the success of pre-trade data analytics providers in fixed income since 2014, and with one exception, none have survived without access to real trade data. Algomi, the most feted of these, has recently had its latest incarnation – Lucera LumeALFA – shuttered by parent company BGC according to sources, although BGC has not responded to request for comment.
These failures have highlighted the importance for analytics tools to gain access to real trade data sets referencing actual market prices.
Euroclear, one of the two major ICSDs, is now offering its data via BondCliQ, the data-as-a-service platform, which has historically provided analytics around dealer trade data in order to support pre-trade price formation.
“Our value proposition was originally to help firms that gave us their data to see the market, and help with distribution of their data,” says Chris White, CEO of BondCliQ. “We’ve struggled a bit with distribution, because it’s a very crowded space and there are lots of places where customers can see dealer markets.”
Access to settlement data has allowed it to expand its offering and support European markets mor effectively he says.
“We can now offer European dealers the ability to see their quotes in the context of historical settlement data, a powerful tool in understanding the full picture of what’s going on in the market,” he continues. “[We can show] not only where a user is quoting, but the quotes being posted around them and to show where a bond has been trading according to the Euroclear dataset.”
Overbond, the credit trading automation and execution service, partnered Euroclear in a similar way in 2021 and has now partnered with Clearstream via Deutsche Börse Market Data + Services (MD+S), using the Bond Liquidity Data offering, to inform the artificial intelligence (AI) model it uses to support buy- and sell-side trading.
“Being at the heart of the Eurobond market, Europe’s largest securities market, it is Clearstream’s mission to increase transparency and therefore efficiency for all participants. This partnership is a great step on this journey, providing the market with comprehensive, up-to-date and high-quality bond settlement data,” said Guido Wille, head of Eurobonds business at Clearstream.
Overbond uses months of historical data to train its AI model, in order to generate pre-trade pricing and liquidity analytics. The new agreement provides Overbond customers with settlement-level fixed-income transaction data derived from the 170 million transactions that Clearstream processes annually across 100 currencies and 60 domestic markets.
“[Collectively with Euroclear data] it’s a complete view into bonds’ settled volumes,” says Vuk Magdelinic, CEO of Overbond. “When it comes to AI training, with a look back of three weeks up to a few months per security, we are basically discerning the patterns around how much that instrument actually trades. This is an optimiser that will show for example can trade in large volumes which may not be visible in electronic institutional aggregate.
Adding value
Bond market data is often hard for users to consume because it is an over-the-counter market, so a lot of trading is conducted via telephone or messaging, and there is no centralised electronic venue. Europe lacks the post-trade tape of trading activity which has existed in the US for nearly 20 years.
Consequently, the records of trades are not in a standardised format and need to be cleaned, aggregated and normalised before they are useful.
“We are structuring the data from Euroclear so that it’s properly mapped,” says White. “It’s also organised in such a way that it can be easily explored, for example, applying sectors to the data set, such as French or Spanish corporate bonds. The Eurodollar dataset is vast in terms of its scope, and the simple classification and taxonomy application around the data is a big and vital step that we perform. In addition, there are lots of derived data sets that people are going to want right out of the box, for example, the ability to see familiar volume over a period of time. We’re pre-calculating a lot of that, so that users can see what the week-to-date or year-to-date volume is for an individual ISIN.”
Gabriele Frediani, head of European expansion strategy and execution at BondCliQ says, “I used to work for Euroclear, mainly in repo, and for years it knew it had a mountain of data in cash bonds and repo which was combined, and that it needed to be mined. Then there was also a conception on the street that the Euroclear data was not presented in a way that was useful [for traders]. In a sense we acted as a catalyst to pick up those two currents, and bring the data to market in spaces that it hasn’t been hit before. We’re talking cash bonds for the time being and further down the line there might be other things.”
Overbond says that by combining Clearstream transaction data for European instruments with data from its partners, who provide binding quote data from all-to-all trading platforms, the firm expects to create a European AI training data set, which will be available to support better-informed fixed-income trading in the EU.
“It’s beneficial for both sell-side and buy-side models,” says Magdelinic. “On the sell side, it’s very beneficial for auto-RFQ responses and margin models. They need to measure price confidence because that determines eligibility for automated trading. Also for the sell side their job is to be closer to market-leading price, close to the best price possible. Looking at settlement flows they can understand if the pricing they get from electronic venues needs to be adjusted or not.”
The buy-side value is more in the area of smart order routing, he assets.
“How much inventory size can I get in this bond across what’s available,” he says. “Yeah, and most of the time, you know, biocides need more than they can execute electronically, so the look-back on 100% of settlement data will give them the gauge to know how much OTC could be available on top of routing request for quotes electronically to meet the desired size.”
©Markets Media Europe 2023
