FILS USA 2022: Boosting automation and innovation

Dan Barnes

The attention of buy-side portfolio managers and traders at the FILS conference in Nashville last week was focused on ways to better manage inefficiency out of the trading workflow. Having a unified set of goals within the investment management process is key to making this work said Muting Ren, senior credit quant researcher & portfolio manager at AllianceBernstein.

Muting Ren, senior credit quant researcher & portfolio manager at AllianceBernstein.

“[Do we] define the starting point of the workflow at portfolio construction, or from trade execution?” he asked. “From a portfolio management perspective, when the order is created, I don’t want to worry about orders coming back to me and all this back and forth. So that’s my top priority. The traders’ perspective is looking through all the items one by one, checking for liquidity and inventory. That means we want to bring liquidity to the forefront of our process, and have it integrated into our portfolio construction.”

The practical steps to doing this are limited by the resources available on the desk. Britni Ihle, head of NAM GSP Algo Trading at Citigroup, noted that the capacity to take advantage of automation may be limited by a firm’s size.

“We’ve worked with large asset managers that have a lot of resources, they’re building auto-execution, their own execution management systems (EMSs) and data aggregation/liquidity scores. We also work with really small firms too. I was visiting clients a few years ago and pitching all these ideas on automation to a smaller client, asking how we could help. They said, ‘Britni, we can’t even get a Tradeweb update on our computer, much less do everything you’re asking us to.’ That gives us perspective on what firms can build internally.”

Although she said that execution management systems (EMSs) had helped to a certain degree certainly with smaller client firms who externalise a lot of technology work, the risk created by low resourcing could also exist for the most capable firms.

“I spoke to a more systematic fund here at the conference which is really tech savvy, with a lot of developers, but they don’t have the resources on the trading desk to build what they want to build. So there are a lot of different perspectives out there,” Ihle said.

Gareth Coltman, global head of automation, at MarketAxess.

The value realised by fund managers and banks who are able to exploit technology can be significant noted Gareth Coltman, global head of automation, at MarketAxess.

“Some firms are using automation solutions to execute 90% of all of their trades on the platform, day in and day out,” he said. “These are obviously firms that have a large number of orders to process consistently. At the other end of the spectrum, we have firms who use it much more intermittently. Perhaps it’s a tool that is going to create scale for the traders when they need it. The rest of the time, they’re going to have a more active process.”

As EMS tools do evolve, they have the potential to be that central point on the buy- and sell-side which can better support both electronification and automation of fixed income trading,

Greville Lucking, CEO, AxeTrading.

Greville Lucking, CEO of AxeTrading said, “It’s really exciting to see how many people have been solving it and for us, we’ve been speaking with the sell-side and increasingly the buy-side, bringing all that data, the venues, everything into one place and then giving the traders the ability to configure their own rules and apply them to workflows in a normalised fashion, so they can concentrate more on the high touch and allow the low touch to be filtered out, aggregated and dealt with in an automated fashion.”

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