A third of US buy-side bond traders see dealer connectivity as priority

Dan Barnes

Research published by data, analytics and trading systems provider, IHS Markit, has found that 33% of buy-side fixed income traders are assessing direct connecting with dealers as a top priority next year.

The paper, run in conjunction with WBR Insights as part of its US Fixed Income Leaders’ Summit, based on research with 100 US buy-side traders and heads of trading, sets out a range of goals for 2022.

It also delved into opinions on market structure, with 71% of respondents reporting that more pre-trade transparency on bonds was needed to grow the universe of instruments transacted in the market. That is in contrast to some views – for example some dealers are concerned that greater transparency will make it harder for them to trade on risk, and some asset managers are cautious about greater transparency around block trades – however the view is supported by the US market’s success in implementing TRACE as a post-trade tape.

“Transparency is supportive and can give rise to an environment that will create momentum for new instruments,” noted one respondent.

Another observed that, “Pre-trade transparency can take decision-making accuracy to a whole new level and drive the possibility of creating new instruments.”

Direct connectivity is one way for the buy side to access firm prices which then reduces the challenge of sifting through multiple data sets to determine the best available price and size that can be found. Of those surveyed, 61% saw moderate value if “further developments were made within their OMS technology to connect directly with brokers”, while 29% saw “significant” value and just 10% though the advantage “negligible”.

“Cost containment and trading operating model scale” was seen as the most important outcome from the integration between primary and secondary market insights and workflows for portfolio construction, idea implementation and order placement.

“What comes through vividly in these results is that bifurcation of primary and secondary market workflows creates significant headwinds to achieving optimal efficiency, operating scale and comprehensive investment compliance,” wrote Brett Schechterman, global head of business for thinkFolio at IHS Markit and one of the report’s authors. “The ecosystem is asking technology providers to think differently about this problem and to deliver digitised, interoperable workflows and holistic straight-through processing. While more innovations are coming to market in the primary market technology arena, the differentiated solutions will provide the community with enhanced decision support features and integrate seamlessly with buy-side P/O/EMS platforms.”

The FILS US Summit will be held on 7 December 2021.

©Markets Media Europe, 2021