Are buy-side traders being let down in corporate bond markets?

Published on 13 January 2021

Poor access to usable data can impede buy-side bond traders and portfolio managers as they strive to achieve investment goals and best execution. Mike Beattie, director of product strategy at Charles River Development and Chris White, CEO of BondCliQ believe traders can avoid being let down by service providers through an integrated approach to data sourcing and analytics.

This model sees the integral value of sell side price makers, data and analytics aggregators and order management system providers in the trading workflow to ensure all parties are abel to benefit from better data.

Trader TV spoke to Mike and Chris about their partnership and the advantages this approach yields to their clients.

Dan Barnes Welcome to Trader TV, I’m Dan Barnes. Buy-side traders tell us that data quality in the fixed income markets – particularly in the corporate bonds trading space –  is very challenging for them. Today, we’re speaking with Mike Beattie, director for product strategy at Charles River Development, and Chris White, CEO of BondCliQ, to discuss some ideas about how buy-side traders can get better access to data and incorporate that into their trading workflow. Guys, welcome to the show.

Mike Beattie Hey Dan. Thanks for having us. Appreciate being here.

Chris White Pleasure, I’m a huge fan of Trader TV. Thank you, Dan.

Dan Barnes So tell us, first of all, how do you think that traders and portfolio managers are being let down by date quality today?

Mike Beattie When you think about the price discovery process, there’s still a lot that we’ve left on the table. There’s still a lot to change. And I think part of that is there’s not really a truely regulated market. And when you think about the data that’s coming into our system, there’s everything from multiple sources of pricing information to multiple trading protocols. And there’s not a lot that really ties some of that together. And when you think about how traders or the buy-side in general is being let down, I think the first thing you have to think about is price certainty. You just don’t see that price certainty in the same way you would with other regulated markets.

Chris White In particular we’re talking about corporate debt, and I think it’s really important that this is the center of the conversation, because of just how rapidly corporate bond markets are expanding, and the quality of the debt that’s in the market today, is actually lower than where it used to be. There’s a lot of expensive noise out there where there’s a ton of information, but putting it all together and trying to make sense of it is quite expensive. So, when you’re trying to trade a really large block of bonds, figuring out who your first phone call should be is essential. Because if you choose the wrong sell-side counterparty who may be showing market, but it’s not a representative market and they don’t really want to trade, you’ve effectively given away information without execution. And I think if you speak to a lot of buy-side folks, that’s really where the poor quality of data is manifesting itself.

Dan Barnes What do you think are the barriers to overcoming those challenges?

Mike Beattie You shouldn’t have a buy-side trader that needs to one, log in 10 different systems, and then two, think about the context that those 10 different systems are providing. You really want a way to have that technology work for you to consolidate some of that data. The second piece of the puzzle is the sell-side is driving change in this market place, and they’re very key participants in price formation. And really making sure that we have them as partners in this buy-side process is important. And thinking about not just the trading protocols they use, but their ability to make markets and interact from a pricing standpoint, really is what pushes this market place forward.

Chris White What Mike said about the partnership with the sell-side is the core of what we’re doing at BondCliQ, because they are the generators of price information in the institutional market. But how do you structure a system so that the people who are creating the data also see benefits? The bearer that Mike talked about, in terms of technology, is something that we feel like we can solve by partnering with great companies like Charles River, who have an extensive network of fixed income buy-side institutions. Now, our job at BondCliQ is to make sure that Charles River users can easily access the information that we’re aggregating from the dealers. That means coordinating with Charles River and making sure that the existing system that they have, can easily call on the information when they need it.

Dan Barnes How do you see the water management system is being key to driving the changes that are necessary?

Mike Beattie I’d actually take it a step beyond talking about just an OMS. When we think about the actual platform itself and what’s happening in the industry, it’s an order management system and an execution management system and not two disparate systems. And when you think about where the future of this is, it’s two things. One is, I see that gray area in between the OMS and the EMS as being critical. How do you get connectivity better? How do you think about interaction with the sell-side? How do you use historic data? And ultimately, five years from now, we’re not going to be talking about just the EMS systems. We’re going to be talking about trading platforms and ecosystems and partnerships, and a much easier way to connect to the larger world. You think about price certainty – it is not a universal concept. It is not from A and from B and from C will all see that same price certainty. Well, that combined OEMS can help them to understand which prices are truly there and available. What’s the history on some of those prices? And it marries some of those things together, so that for me, I’m interacting with dealers one, two and three. I can see historically what I’ve done with those dealers on the order management side. I can see the positions I have. I can start to think about some of the analytics that I can start to look at, around how often they’re quoting and pricing some of this information, how often I’m executing. And you start to really break into some of those interactions between not just security selection and routing, but execution and trading protocols.

Chris White The way that we’ve organized the data, not only the simple visual that we give, but also the analytics that Charles River can start to build off of it, can start to almost provide like weather forecasting around liquidity. That’s really important, because as everyone knows, the implementation costs change depending on the amount of liquidity that’s available in the particular security. So that’s another thing to add to the list of advantages you can get.

Mike Beattie I like that weather forecast idea. You know, one of the things that we try and do within Charles River is aggregate data in a very structured way, so that if you’re trading a certain bond, you’re not just looking at an ax from one or two dealers, you’re taking all the dealers, you’re consolidating that; your history about those dealers. You also have, ‘here are the executions and then maybe you have a valuated pricing,’ or you have context so that you’ve got this core aggregated data view.

Dan Barnes OK then, so what do traders need to do in order to realize better data access and performance right now?

Chris White There are three main steps buy-side traders should take. The first one is really examining the current workflow around access to data. What are your traders and your portfolio managers vigilance process? How easy is it for them to pull up the information they need in a timely fashion? The second part is then testing the quality of the data that you’re using, and how you test it, that’s up to you. But you should absolutely look at the reliability of the information that’s being put in front of your portfolio managers and traders, because if it’s in front of them, they’re going to assume that it’s accurate. Letting the sell-side know how important data quality is to you, is really the final piece, because if the sell-side feels like the quality of the pricing that they’re making in the market is an extension of their service to the customers, and that order flow depends on them being proficient at making consistent, accurate, competitive pricing, you will see a dramatic improvement in the quality of data.

Dan Barnes That’s been fantastic. Thank you so much.

Thank you, Dan.

Thanks, Dan.

Dan Barnes I’d like to thank Mike and Chris for their insights today, and of course, you for watching. To catch up on our other shows or to subscribe to our newsletter, go to TraderTV.NET or ETFTV.NET.