A new way to access dealer liquidity

Published on 16 March 2022

Finding the right dealers, connecting with them and executing a trade without leaking too much information into the market pre-trade is a consistent challenge for the buy-side trading desk.

Howard Hoskin and Paul Mutter of Fenics explain how new trading platform, Fencis Invitations, is launching to tackle each of these issues. Based on a ticking mid-price, Fenics Invitations allows buy-side traders to route anonymously to the interdealer broker network that BGC has developed, using a request for auction protocol. By

Providing price certainty and supporting dealer-to-client relationships. the team outlines how they see Fenics Invitations supporting the liquidity development, initially in EM hard currency.

Dan Barnes: Welcome to Trader TV – your insights into trading for professional investors. I’m Dan Barnes. Bond traders can find accessing liquidity challenging, especially in volatile markets. Joining me today are Howard Hoskin and Paul Mutter of Fenics to tell us hwo a new tool, Fenics Invitations is going to enhance access to liquidity.

Howard, Paul, welcome to the show.

Howard Hoskin: Thanks for having me on.

Paul Mutter: Thanks, Dan. Great to be back.

Dan Barnes: So Howard, starting with you, can you tell us, what is Fenics Invitations and how is it boosting access to liquidity?

Howard Hoskin: There are multiple problems in the market around how you get the proper execution with the proper sell-side liquidity providers. ‘Am I connected to the right people? If I’m not, do I go to a platform that offers match principle? That offers an ability to hit people who I might not have lines with?’

Information leakage is another massive issue when you’re trading bigger-sized tickets. So we’ve developed a protocol that is trying to address these each in turn and provide it into the same protocol. Starting off in emerging market hard currency.

Howard Hoskin: Fenics Invitations is really harvesting the liquidity that we have access to via our bank connectivity. As the world’s largest inter-dealer broker, BGC is connected and on the desk tab of all of the traders around the world that are trading the asset class we’re developing a protocol for. In particular, we have access to many local banks that the buy-side client base might not otherwise have access to. And so we’re matching that unique liquidity through a carefully designed protocol so that the buy-side and banks can talk to each other, maintaining their own relationshireporreporreporreporreporreporteporteporreporreporreporreporreporreportreportporteporteports, but tapping into that liquidity.

Dan Barnes: When we’re talking about the buy-side specifically, what are the advantages that Fenics Invitations is going to create for them?

Howard Hoskin: Through our Fenics market data, we have a ticking mid-price that runs throughout the day that will change and update every five minutes. So it’s going to be attractive for the buy-side, whether they’re buying or selling. One of the challenges the buy-side have is trying to find the liquidity in the right places. Often they know where it is. They receive certain axes and runs coming through from various different sources, and they’re able to access those because they have lines with various dealers. In lots of cases they don’t have lines. In some cases, the axes are not current. Sometimes they are.

What we’re trying to do is we’re taking and using our IDB network to be able to anonymously route their inquiry to the right people who are interested in that particular bond, that particular Ayson. ‘How are we doing this?’ Well, we’ve created a request for auction protocol, which enables the buy-side to trade whenever they want during the day and start their own private auction. The beauty of the system is that the sell-side who participate back into this particular auction, they can deal with one, two, three, four. It doesn’t really matter how many come back. And they have one ticket, one shape. They face one central counterparty, which is us at BGC, as do the sell-side, and they’re able to access the stream of liquidity in that particular bond at that time.

Dan Barnes: The sell-side, of course, have got lots of different trading venues that are reaching out to them. Why do sell-side firms care about this? What do they get from this?

Howard Hoskin: The sell-side want to know what is going on in a particular Ayson, irrespective of whether it suits them to trade or not. They still like the information. So receiving tickets in bonds that they have recently been playing around in, so they are therefore interested in buying or selling can be construed as being critical to them. Certainly critical if other people have that information and they don’t.

Paul Mutter: The fundamental approach we’ve taken is preserving and supporting the dealer to client relationships. The market has benefited from the evolution of RFQ and anonymous all-to-all trading. But there’s also room for banks to have relationships directly with clients, and our protocol supports that. I would also say for the banks, we’re providing price certainty. That’s a double edged sword. But many of the platforms involve the dealer making up a price, putting it in, seeing where they fit in competition, or some sort of negotiation around a price. We believe by using our Fenics market data mid-price and providing that to both sides, presenting it to both sides, they have clarity on what the price is and they can decide to trade or not trade.

Dan Barnes: People are very time pressured at the moment. How will you enable them to on-board, given the little time they have to get involved in strategic projects today?

Howard Hoskin: The first banks told me upfront exactly that. They said, ‘Howard, look. If this involves me going to technology, or me on-boarding something that is considerable, I don’t have the time and I don’t have the budget for it.’ But in terms of ease of access, they already have our system. It’s called GBX, but it’s the IDB system that they log into every day, first thing in the morning, along with the other systems that are critical to their existence.

This protocol comes up in that logging. They will just receive a pop up, hopefully in a bond that they’re interested in because they have an activity in that particular bond in the recent days.

Paul Mutter: By harvesting the BGC global network of regulated entities, we believe we’ve structured the fastest time to onboard a new credit platform to date in the marketplace. We’re operating on a global footprint with an OTF in the UK, an OTF in the EU and an ATS in the US. We have to remember our initial asset class is emerging markets, and that’s a global asset class. In the way we’re tackling that problem is, our buy-side clients pick one of the three regulated entities, which they face. We then take care of onboarding all of the banks to the other entities, many of which the banks are already onboarded to. And so we flip the switch on and that one buy-side can access that global network of bank liquidity.

We have over 200 clients onboarded to that system. We’ve done our first in-market commercial trades and we’re very optimistic about our speed to market on this platform.

Dan Barnes: Now if I’m a buy-side trader or I might be trading for different types of portfolios, insurance, passive, etc. How can I access the platform?

Howard Hoskin: So the buy-side have got multiple different ways that they can access our system. On the simplest version, you have a buy-side hasn’t got integration, trading off spreadsheets or something like that, and he might want to do voice trades. So we can do on behalf of. So he gives us an order, we put that into the system, it executes or it doesn’t. And we send the filled back via a chat or something similar.

Post-trade we’ll send a report, and that comes with all the STP connectivity that he may or may not have done with what he’s been receiving from lots and lots of other products.

Hedge funds, they tend to prefer to have a look at GUIs and use it that way. We have a GUI that they can sit and enter the orders electronically, and then we send them a report and it’s the same STP off the back of that. The asset managers, lots of them use TSOCs. They’re able to access our products through an auction board inside of TSOCs and the fills for that buy-side trader will then come back into TSOC, which then has pre-integration if they have set it up with the OMS, which then gives them that STP straight back into whichever OMS they have. The other method is through our LumeALFA product, and that will follow the same STP through our own pipes.

Dan Barnes: If I was a trader and I were looking at this compared to an RFQ platform, what does this do differently?

Howard Hoskin: RFQ is give up the buy-side from the start. It does give up the direction of the trade and it does give up the size that they want to trade. All pre-trade, people are less concerned about that in smaller lots. In the credit space, you know, the average ticket size on RFQ might be half a million, a million, something like that. The average ticket size in an auction is more like two to five million. What a user might not want to do is to say, ‘hey, I’m a buyer of five million of this bond that hasn’t been traded in a few days or months or a week, and tell some anonymous people that he’s one side of that trade.’

Dan Barnes: Where is Fenics Invitations going to go next for clients?

Howard Hoskin: We’re hearing an appetite for the same protocol in high yield, investment grade, super sovereigns, and then local currency, emerging markets. And so it’s on our near-term roadmap to expand the protocol to those asset classes in response to customer demand.

Dan Barnes: Fantastic. Paul, Howard, thank you both so much.

Howard Hoskin: Thanks, Dan. Great to be with you.

Thank you.

Dan Barnes: I’d like to thank Paul and Howard for their insights today, and of course, you for watching. To catch up on all our other shows or to subscribe to our newsletter, go to TRADERTV.NET.