Virtu launches liquidity scoring tool for fixed income

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Kevin O’Connor, head of Virtu’s broker-neutral Analytics and Workflow Technology division.

Electronic liquidity and technology provider, Virtu Financial, has expanded its multi-asset transaction cost model offering with the launch of Fixed Income Agency Cost Estimator (FI ACE), a pre-trade analytics tool designed to provide transparency and measurement of liquidity and transaction costs in fixed income markets.

FI ACE uses a proprietary pre-trade liquidity model that should help to confirm execution decision making, assist in liquidity management and help document best execution in connection with regulatory obligations.

“In response to the rising liquidity demand of corporate and sovereign bonds and increased attention from market participants—specifically algorithm and program traders and regulators around the world—the launch of FI ACE gives our clients the visibility they need to manage liquidity and risk in their portfolios,” commented Kevin O’Connor, head of Virtu’s broker-neutral Analytics and Workflow Technology division.

FI ACE cost estimates use Virtu’s Global Peer database for Fixed Income (GPFI) which contains aggregated proprietary trade information submitted by Virtu’s fixed income transaction cost analysis (TCA) clients. As of October 2020, FI ACE covers around 37,500 North American and 25,000 international corporate and agency bonds, 4,000 European sovereign bonds as well as around 450 US Treasury instruments.

Virtu has suggested that possible applications of FI ACE include:
• Liquidity risk management / regulatory compliance: Used as a tool to help meet certain regulatory requirements (e.g., SEC rule 22e-4) and can accommodate the prudent valuation standards of the European Banking Authority (EBA) which call for calculating exit prices of portfolio positions assuming a fixed liquidation horizon;
• Liquidity scoring for individual bonds : FI ACE provides a supplementary liquidity score for each bond to help facilitate the liquidity comparison across bonds;
• Cost-aware portfolio construction: FI ACE estimates can add a liquidity component to a set of portfolio characteristics. Security-specific market impact estimates can be used in portfolio rebalancing decisions;
• Provide analytics to support program trading: FI ACE can be used to facilitate the decision making around agency and principal trades executed by program desk traders. In agency trades, a program trading desk possessing only generic knowledge about the basket can use FI ACE to help determine a fair price of the basket accounting for market impact and volatility exposure;
• Benchmark trading performance in TCA: FI ACE can be used as a handicap measure to analyse the client’s execution performance at trade or parent order level.

FI ACE estimates as well as liquidity scores are currently available in comma-separated flat files via ftp or accessible via Virtu’s Open Technology APIs.

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