By Joram Siegel, Head of Fixed Income, Outsourced Trading at Cowen
After years of resisting innovation and the adoption of technology in the same way as other asset classes, bond investors are finally starting to move forward. Against this backdrop, the rise of new trading protocols and venues, and access to massive amounts of data, has made the market more complex in the short term.
Sourcing liquidity and executing bond orders efficiently has actually become increasingly difficult. There is more reliance on advanced technology to navigate an already fragmented market and to get best execution. The buy side is now in an arms race for talent, technology and operational efficiencies like never before.
When I joined the Cowen team in January this year, my first priority was to incorporate the right Order and Execution Management system (OEMS) into our fixed income outsourced trading desk. In light of the market complexities, and in order to provide the best possible solution to our clients, it was vital that we went beyond traditional buy-side order management systems.
Navigating the maze
Many new platforms and protocols have emerged, generating voluminous and valuable reams of data that is increasingly being leveraged to enhance trade execution and liquidity searches.
In a recent conversation with David Tattan, Managing Director and Head of European Sales at TORA, the OEMS that we selected to underpin our outsourced trading desk, he told me, “Navigating the maze and corralling the information is no easy feat, especially for players whose pockets are not as deep as their larger counterparts. If they do not step up their technological game, they are in danger of falling much farther behind and losing their competitive edge.”
One reason for the increasingly complex ecosystem is the depth and breadth of the global bond market, which is roughly three times the size of its equity counterpart. There are not only many more securities, but several either trade infrequently or are illiquid and are still negotiated bilaterally between counterparties.
This has meant market participants have to log into many different systems and bond platforms separately, make calls with individual counterparties and collect data from disparate sources scattered across the fixed income landscape. Moreover, often the data gathered from such a fractured environment can be poorly structured and of variable quality, particularly for the more opaque, illiquid instruments, which makes it hard to analyze in systematic way. The result is that traders have lost time, money and equally as important extra basis points from not having a holistic view of the information needed to make the right investment and execution decisions.
According to David, “The nirvana is to be able to source, process and aggregate data from multiple sources – electronic or otherwise – in order to gain more meaningful insights, access liquidity and achieve better bond pricing and best execution.”
This requires more than a tweaking of technology but a rethink in which tools can be best deployed to enhance the integral data consumption and management. Clunky legacy systems, albeit a well-known problem, should not be an excuse. These legacy systems simply cannot keep pace with the speed at which data is flowing into the market. Any thoughts of overlaying a piece of new kit on an existing system is also not a long term or even quick fix.
It has been well documented that fixed income technology is a generation behind other asset classes. However, in recent years, the pace has quickened with new innovative systems and processes coming onto the market.
Making the right choice
In our view, an Execution Management System (EMS) or Order and Execution Management System (OEMS) is an essential workflow management tool for the fixed income buy-side trader. By consolidating multiple platforms into a single interface, the EMS/OEMS becomes a cost effective, efficient way to better use desk-top real estate. The right system will offer all the functionality to manage orders and route trades, as well as incorporate other vital tools for portfolio construction, compliance and operational controls along with data aggregation, decision support and analytics, and automation in one place. Equally as important is to select an OEMS that is flexible and agile enough to adapt with the ever-changing environment.
By bringing multiple trading platforms and global brokers into one platform, with a full suite of order allocation management tools and post-trade analytics, traders benefit from a single system for their trading workflows.
The solution needs to offer a single view of the fixed income market in one click and allow users to easily direct an RFQ to many platforms and brokers at once. In addition, the EMS/OEMS should offer a comparable bond tool, smart order routing, pre-trade risk controls, real-time position management, and P&L tracking in a single interface.
In today’s intensely competitive and regulatory burden world, firms need to have the right technology to differentiate themselves to stay ahead of the pack.