Electronic liquidity providers push for reform

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The buy side relationship with alternative liquidity providers was strained five years ago after the high-frequency traders and their reputations – and business models – were implicated in structural bias in Michael Lewis’s 2014 best-seller ‘Flash Boys’.

This not-so-new generation of market disruptors has long been rehabilitated in the equities markets, with buy-side traders gradually becoming more savvy and sophisticated in how they source liquidity. In the fixed income world too, electronic liquidity providers are now seen as valuable and viable counterparties reflected by two presentations on Wednesday morning.

First, Mark Bruce, head of FICC at Jump Trading, explained how his firm and others are increasingly supplying bespoke and bilateral liquidity to large buy-side players in the US Treasuries market, via the direct streaming services of electronic trading platforms.

Now that asset managers are sourcing substantial and consistent levels of liquidity from Jump Trading, the firm is looking to expand its offering, by streaming blocks and making markets in European government bonds. Bruce said the firm hope to overcome existing access limitations.

“Evolution of the primary markets needs to happen,” he said, to enable direct streaming in Europe.

As outlined by global head of fixed income trading Matt Berger, Jane Street’s increasing levels of interaction with the buy-side are being driven largely through the exponential growth of portfolio trading. According to Berger, the firm facilitated US$22 billion in portfolio trades in Q3 2019, a more than fivefold increase over Q3 2018.

The firm’s ability to offer tight spreads on portfolio trades stems partly from the overlap with its ETF business, but Berger said continuous innovation was necessary to meet evolving demand, from both passive and active managers. “Increasingly, there are portfolio trading solutions for a broad number of buy-side firms. We’re working with clients to make the process smoother and more efficient,” he said.

©The DESK 2019

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