New transparency rules, advances in technology, and mounting market pressures are among the key drivers accelerating automation in fixed income, according to Stephanie Fraser, senior trader at Baillie Gifford. Speaking to Trader TV, Fraser highlights growing confidence in rules-based trading during periods of heightened activity and outlines her team’s roadmap for expanding automation. She also discusses the buy side’s shift toward a multi-asset trading model and explains how AI is being embedded into daily workflows to enhance productivity and support decision-making.
Interview
Josephine Gallagher – To start off, I would like to have a conversation about automation in fixed income, which, again, is not a new conversation. However, I have had a bunch of chats with buy sides this year, and there’s seemingly growing confidence in the use of rules-based trading in fixed income during periods of heightened volatility. So are you seeing a notable shift in sentiment take place, and what is your own team’s approach to automating its flow?
Stephanie Fraser – Yeah, definitely think there is, and that shift is very much still happening. So as you said, we all know that rules-based trading and automation aren’t new things. They aren’t new tools. They’re just getting a lot better. I’d say there are three things that really stand out for me just now, the first one being transparency. So the UK went live with a new transparency regime in December last year. We’re going to have our bond consolidated tape go live on the 22nd of June this year, and the UK is really becoming one of the most transparent markets globally. A little stat, there’s 80% of our Sterling-denominated credit trades that are now being reported in real time. That’s by ticket count, and interestingly, if we look at the US Treasury market, the transparency is actually better in the UK for treasuries than it is in the US. I’d say secondly, is the tech. So I assume the banks, the platforms, have been spending more money improving their tech. So we’ve, we’ve really noticed a huge difference over the last couple of years. And then, thirdly, there’s a real focus on cost and scalability. So we’re all being asked to think about how we can run a more efficient and scalable trading desk. But it is worth stressing, though, that automation currently only works for the highly liquid parts of the market. We’re always going to need the deep expertise and market knowledge for our large, complex trades, and counterparty relationships will continue to be as important as ever.
Josephine Gallagher – And so what does your own automation roadmap look like?
Stephanie Fraser – So our starting point is going to be focusing on that liquid part of the market that we just spoke about there. So we’ll be looking to align our rules with the deferrals under the new transparency regime. So anything that really falls under real-time reporting, we’ll be considering for automation. We’ve also spent the last couple of months just getting a refresh on the rules-based trading across the major platforms. And it’s pretty impressive, because they have come a long way since the last time that we looked at them. Having said that there’s, there’s always room for improvement. And I think one thing that I’d like to pull out is really bank axes. So it feels like the buy side is potentially going to have to reconsider how much weighting they put on bank axes when they’re building these rules, as we’re just finding that these axes aren’t actionable. I’m not sure if the banks are just now sending everything in as an axe, because they know that they’ll then get a look on the inquiry. So I guess for us, it really helps that we have a senior data scientist who sits on our desk alongside the traders, and we have some really rich TCA (transaction cost analysis). So I think we’re going to be leaning more into our TCA when we start to build our rules. So, looking at things like slippage, looking at things like hit ratio. So these are, these are kind of like standard metrics that we all already use when we talk about our FX automation. So I guess thinking more broadly, it kind of leads into what we’re thinking about across asset trading plans across the desk. So rather than just thinking about individual asset classes, we’re now thinking about what’s liquid, regardless of the asset class, and how we can bring those workflows together.
Josephine Gallagher – So, as you mentioned, your own firm is undergoing this transition to a multi-asset desk. Some might argue that there is a need for specialization in trading, and that there are too many nuances between asset types, and even the word consolidation frightens some people. So what would you say to this argument, and why is your own team making this transition?
Stephanie Fraser – Yeah, no, I think that’s a fair, fair challenge. I do want to stress though, this isn’t about diluting experience. It’s about making the desk more flexible, more efficient and more scalable. We’re always going to need SMEs, and we’re not trying to move away from that entirely. We just want to get better at sharing knowledge across the trading desk. There’s, there’s so much that we can learn from each other, and we’re not being unrealistic about this. There’s, you know, there’s no way that fixed income trader is going to pick up 30 years of equity trading experience overnight and vice versa. So we’re starting slowly. We’re joining each other’s team meetings. We’re talking through trade examples, we’re learning each other’s processes. I think we are fortunate, because we all have one OMS (order management systems) across all our asset classes, so we can already view each other’s trades, and we do already operate a global trading team, so we’ve got traders in Hong Kong, Edinburgh, and New York. So as I said, it’s more just about building a more flexible team. Personally, I’m finding it fascinating, and having traded fixed income for 30 years, I’m now looking at equities, and surprisingly for me, there’s a lot more commonalities when we’re talking about liquidity across the asset classes than I would have guessed. Yeah, a prediction is, I do think that RFQs (request for quote) are going to become more mainstream in equities in the coming years.
Josephine Gallagher – So Steph, it’s difficult to mention automation and not reference AI as well. Tell us what role does AI play in your own trading desks’ workflows today?
Stephanie Fraser – Yes. So I mean, AI has been a buzzword of the conferences for probably the last couple of years, and I’m sure it will feature heavily at FILS (Fixed Income Leaders’ Summit) this year in Boston and again in October in Europe. So there’s a phrase that always resonates with me, which is AI won’t replace traders. It’s traders who don’t use AI that will be replaced with those that do, and I think already we’re starting to use it in our everyday workflow. So I’ll give you an example, just last week, so a PM came to me to ask for a very specific list of bonds. Now, in the past, that might have taken me a good hour to really pull together some quality data to send back to them. It took me 10 minutes I used an AI tool, and I think what I learned through that process was making sure that I was putting the right prompts in. Thinking about what we’re doing specifically at Baillie Gifford, it is a strategic priority for the firm, for the whole workforce to become more AI literate. I’ve literally just finished a compulsory AI training course, which was, which was really insightful. But we’re also rolling out tools across the firm, like ChatGPT enterprise, and we’re being actively encouraged to experiment with it. And then on the trading desk itself, we’ve added AI as a standing agenda point to our team meetings. So, really just encouraging the traders to think about and share their experience on what they’ve been using it for, so we can all really learn from each other. So my closing remark would just be automation. AI, whatever you want to call it, I think we just really need to embrace it. It’s really going to make us all more efficient, and it’s going to free up time for us to focus on those more complex trades.
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