Support for streaming firm prices is contingent on connectivity between price-makers and price-takers; a big question which will play out over this year’s Fixed Income Leaders’ Summit (FILS) in Barcelona is whether this is connectivity is direct or intermediated by trading platforms.
“People are asking if the disruptors – the technology players – will themselves be disrupted,” says Lee Sanders, head of execution at AXA Investment Managers. “Banks look like they are trying to take back control of liquidity so it will be interesting to see how that plays out.”
Sell-side firms have not ruled out using platforms as a model for supplying streaming prices. In June, Phil Allison, global head of automated trading in fixed income at Morgan Stanley, told The DESK, “I think we are waiting to see exactly which of the various platforms may or may not emerge to fulfil that need.”
However, market participants have recognised an appetite for fee compression on platforms, as both buy- and sell- side firms make efforts to reduce their cost base, as part of the exploration around execution protocols.
“The discussion of sell-side interaction with the buy-side, building on existing relationships, is broadening out, to include point-to-point trading, axe dissemination and algorithmic pricing, while both buy and sell-side firms are looking at the pricing structure of trading via MTFs,” says Mike Poole, fixed income dealing manager at Jupiter Asset Management.
Oscar Kenessey, head of Trading for Fixed Income, Derivatives and Currencies at NN Investment Partners, says, “Certainly on the sell side there is a lot of concern that the middlemen are taking quite a lot, and this should be concern to the buy side as well. It seems to be less vocal from our side, but it should be more so.”
He observes that while the cost of connectivity and data has dropped significantly in private use, the cost of connectivity to data in finance has been increasing. Recent concern voiced by regulators regarding the cost of market data is exemplary of the issue.
Nevertheless, he notes that bilateral electronic trading without the use of a platform as an intermediary would increase the cost and complexity of connectivity.
“Direct connectivity is almost a desperate measure, right?” he says. “It would mean that everybody has to wire up with everybody else without a central hub – it’s ridiculous.”
©The DESK 2019