Trader TV’s Post

Transcript

Welcome to Trader TV, your insight into institutional training. I'm Dan Barnes. Credit traders in U.S. markets are rapidly evolving the way they execute orders into the market. Here to discuss that trend and Michael Daley of T Rowe Price, Ryan Raymond of Belgium and Mike Sobel of Truman. To start with, what are the dynamics impacting market liquidity and credit today? Liquidity in the marketplace this year has been quite strong in ways and for reasons that we think are sustainable. So Trace Adv is up 2025% versus a year ago and that is definitely above trend growth. I think we're beginning to see the increase in velocity or turnover in the US credit asset class that we've been kind of hoping for, waiting for, I think reasonably expecting and that comes from better tools than we had a few years ago. Rules to access the market, more transparency, more efficiency, data-driven decision making, more participation from kind of non traditional market players. Systematics are playing a bigger role in the market, Retail is playing a bigger role in the marketplace. I think the obvious answer is portfolio trades. We've been talking about these for years, but really this year is when we've seen broad adoption across all different kinds of counterparties with that different styles of portfolio trades as well. Right now there are about 10% of trace volumes, but it really feels like it's. Higher than that we're growing and I expect this to be a bigger and bigger part of what we do. When I think about how we react to portfolio trades at Elgyem, we look at what are the axes on the follow and how can we best suit our clients by executing portfolio trades ourselves. I think we've seen now more of a focus on thinking about within credit, getting exposure to certain risk based factors particularly among parts of the curve. We've seen an uptick in curve based extension trades, shortener type trades, I think more importantly over the last. Several months and uptick in solving for optimization type trades in the market where I think clients are going to dealers with a set of constraints looking for a risk outcome that they're trying to achieve. And having to a large degree dealers trying to solve for that. So I think we're seeing a growth in sophistication among clients. If you want to optimize portfolio trading, what do you need to do in terms of analytics and dealer relationships? So the analytics are very important for us in the portfolio trades. That's how we can measure our transaction costs. One of the things we like about portfolio trades is that we have all those analytics easily accessible that we can hand to portfolio managers and ultimately clients. When we think about the next portfolio trade, pre trade analytics is becoming more and more of a focus, not just for us but for the whole market and that comes down to a few things. One is where do we think execution will be to determine if we're going to trade or not? And then two, how can we optimize a portfolio and how can we solve for lower transaction costs, higher spread, higher yield or some combination of all three of those in order to find the best outcome for our client. So I think really it's thinking about which dealers have the best ecosystem to achieve the risk objective, looking at the pre trade data to inform the decision making process, kind of pointing time, looking at liquidity stacks. Via aggregation tools to think about. Who point in time is probably best set up to do this trade? Our market is a relationship driven market. It always has been and always will be. But the ability to leverage data, I think to best identify and then engage with the most suitable counterparties at that point in time is an enhancement of the dealer to client or the general relationship driven nature of our market. And I think everyone's beginning to understand that and appreciate that it really is mutually beneficial to everyone in the marketplace to be able to see more flow in the thing that they're particularly good at and best positioned to do at that point. Time, I'm really happy you brought up the idea of data and again kind of the pre trade side of things. But I think importantly there's a focus on, you know, a migration away from individual CUSIP or ISIN level data metrics and more thinking about the ability for dealers to facilitate overall thematic risk based or factor based liquidity. And how is automated trading affecting execution quality and the market more widely? Using technology to enhance efficiency at the kind of lower value ad portion of the food chain is as important in bond trading as it is and probably any other industry as I think liquidity expands but also changes a little bit. There are a range of trading protocols that we've talked a little bit about. We're seeing smaller trade sizes as part of that protocol expansion, particularly in. RFQ space, so the ability to chip away at a trade using a rules based algorithm and some third party price that makes sure you know that the price is the right one that you're executing at. While the traders are off. Thinking about more important things like portfolio optimization and what risk factors are specific credits or sectors they're trying to change exposure to across the portfolio. That's really valuable thinking about the growth of just RFQ's as a whole. When liquidity can get strained and the buy side stepping into price that risk. If you have automation in place or some sort of roles based approach where it becomes a low touch proposition for the trader where up to certain thresholds and RFQ's that are coming out. You can have rules in place that are auto responding to that RFQ. That becomes pretty compelling. So the more we can automate and the more that we can take off of our plate, that can really help us focus on the places where we can add value. Dealer relationships, trader relationships, trade execution for blocks and then also frankly looking at analytics and data around a number of issues so that we can become better traders. So how platforms supporting traders in terms of getting better execution and supporting these different trading protocols? I really see the platforms taking the forefront in terms of a lot of these pre trade analytics. So I have the access to all of My Portfolio trades, but I don't have access to everybody else's. If a dealer can use that information to help inform where a trade will likely execute before I put it to the market, that's helpful. If the platform can then take the next step and say, oh, how can we optimize your list to solve 4 transaction costs or spread, then it's helping me come to a better solution for my clients. That's really powerful. There's a lot of data out there that we have, but the platforms have more using that to come up with a better portfolio, which is really helpful. When thinking about different types of platforms, it's the suite of offerings or products that the platform as a whole will offer, right? It's not just RFQ. RFQ in a lot of ways is just a commodity, right? It's available everywhere. It's what else is the platform offering in terms of the pre trade analytics, the post trade analytics and also the other liquidity protocols that are across the platform. Like you mentioned swarms in the growth of Truman, the growth of RFQ it true mid portfolio trading, the pre trade side of things there is growing exponentially. All of that factors into our. Decision making in terms of which platforms to use. It's which offers the best product offering as a whole to the end user. Efficiency, transparency and access all lead to increased liquidity, and everyone benefits from that. With every passing quarter and year, there is more receptivity to and demand for electronic trading tools, data, more protocols, enhanced protocols. So the desire to engage the market in this way is as high as it's ever been. Connectivity is really important. Every client has a unique workflow as an idiosyncratic, bespoke way that they do business, and they have similarly idiosyncratic tech setups from the other OMS and EMS and vendors that they use to their internal proprietary architecture. Everyone's setup is different and it is the responsibility and we Truman think opportunity for a platform or for a venue to be agile and dynamic and collaborative. And figure out how for each institution, can we deliver a suite of protocols that work within their kind of needs and their workflow and their constraints and their existing systems to make sure it works for everyone. That's been great. Thank you so much. Thank you. Thank you. It's been a pleasure. I'd like to thank Michael, Ryan and Mike for their insights today and of course you for watching to catch up on other shows, including Trader TV this week at 6:45 AM UK time every Monday morning, go to tradetv.net.