Bringing the best-of-breed to fixed income trading

Published on 16 July 2021

Getting the best-of-breed tools to work together on the trading desk can deliver the advantages of highly electronic trading to less liquid markets. Data, analytics and order management collectively deliver best execution, which has driven IHS Markit’s thinkFolio, Neptune Axes and Lucera’s LumeALFA Analytics to team up to deliver optimal pre-trade insights for buy-side traders.

In this interview, Brett Schechterman of IHS Markit’s thinkFolio, Byron Cooper-Fogarty of Neptune and Paul Mutter of Lucera outline the capabilities delivered through this partnership, outlining the challenges facing fixed income traders today, and the opportunity afforded to them by working with the three firms.

Dan Barnes: Welcome to Trader TV – your insights into trading for professional investors. I’m Dan Barnes. Certain asset classes suffer from a lack of functionality on the trading desk, often because there’s less electronic trading available. Today, we’re speaking with Brett Schechterman, of thinkFolio at IHS Markit, Paul Mutter of LumeALFA Analytics at Lucera, and Byron Cooper-Fogarty of Neptune. We’re going to be asking, how can a buy-side trading desk get more optimized execution?

Guys, welcome to the show.

Brett Schechterman: Thanks, Dan. Thrilled to be here.

Byron Cooper-Fogarty: Great to be here, Dan.

Paul Mutter: Thanks for having me, Dan,

Dan Barnes: Brett, starting with you. What do you think traders can’t do in asset classes like credit today, which they can do in more electronic asset classes?

Brett Schechterman: You can’t force conformity across all asset classes. It’s not going to happen. So you’re going to have people that see liquidity and see price action through a unique lens depending on the asset class they specialize in.

Byron Cooper-Fogarty: In fixed income, particularly the less liquid asset classes like credit, emerging markets and some parts of rates, there is a lack of higher quality, pre-trade data, but also post-trade, particularly in Europe, obviously there’s TRACE in the US. But the other thing as well, and I think this is key, is actually being able to bring it all together.

Brett Schechterman: I think the aggregation to Byron’s point is bringing in their own, allowing to customize the plumbing. To give them the deepest breath of not only what they have inventory-wise, perhaps what they’re sourcing from their sell-side counterparts, and then bringing into context what’s happening in real time with the sell-side acting as an inventory, plus the electronic markets. I think that mosaic is really what you need to start taking up and enhancing liquidity to the market broadly.

You’ll still see the volume of trades overall continue to tick up in the electronic markets, but the percentage of volume that gets traded via those venues is still particularly low. If you really understand the liquidity signal framework and it helps you decide about whose phone to call, how to route an order, how to break it apart from a market impact perspective, that will breed real feedback and return on investment in terms of basis points over time.

Dan Barnes: How do you see things working on the buy-side trading desk right now to create more block opportunities and to create more opportunities in fixed income?

Paul Mutter: I think what’s powerful here is the flexible combination of different offerings in a delivery mechanism that works for the buy-side. We all hear about the screen space war and one-size-fits-all OMS systems are, of course, very costly. And I think in a fragmented fixed-income universe, the ability of different offerings to interact seamlessly and hopefully in a low cost way is the secret to getting those institutional block trades to the trading desk and delivering that value proposition to the trader.

Dan Barnes: Everyone believes their workflow is unique. If we look at the nature of those workflows and buy-side dealing desks today, how do you think we can achieve the integration aggregation of all these points spread?

Brett Schechterman: The market a few years ago was asking one or two vendors to do everything for them. We’ve seen a paradigm shift in the fact that clients want a lot more flexibility. They want a lot more choice. They want a menu of options. The alpha generation process and perhaps dealing desk alpha generation that they bring to the table is unlocked by the suite of technology decisions that they make in data and analytics.

And everyone’s talking about innovation, so you know, how you squeeze every basis point out of every single trade. The rest of the market are developing tools that are 100% dedicated to building these workbenches for the execution desk, for single asset, for multiple asset classes. So we want to build strong relationships with these providers to offer our personas that are using thinkFolio, whether you are a portfolio manager or you are a trader, you are a research analyst or a desk analyst, the traders need dedicated tools. They need dedicated insight. Hopefully some of those liquidity aggregation tools allow them to go deeper with workflows. And Paul and the team are working on some things that I think are exciting in that space. But we want to continue to foster as much operating flexibility as they need. And we’re going to leave it to partners like Lucera to really drive and deliver state of the art tools that can serve the purpose in an optimal fashion.

Paul Mutter: We’ve been so pleased with this thinkFolio partnership, and we’re making other partnerships with other OMS and EMS providers and similarly with the best in class data providers like Neptune so that we can be where the client needs us to be without being too formal and requiring it to be our GUI. We’ll deliver what the client needs in whatever format is requested.

Brett Schechterman: When I looked at my client base, there was a large demand, obviously, for the Neptune data. We had to think about ways that we were going to serve that up and provide tools to navigate that data. We’re in the process of modernizing thinkFolio, so that core platform needs to be our focus, but we still want to make sure that we’re delivering value and innovating and getting things to people’s desktops that they need in the shortest time period possible.

The way this partnership came together was really innovative thought from all three in this discussion here. I’ve been following the IP of LumeALFA for several years and the fact that it was designed originally by a leading buy-side thought leading desk that put a lot of time and effort into rationalizing and normalizing this data content of consumption, that really validates the reason why I think that this value propped with a combined integrated workflow brought a lot of value. We’re doing a lot more with Paul as it relates to the data side valuations, etc., so the partnership continues to evolve, and it just made a lot of sense for both organizations at this stage.

Byron Cooper-Fogarty: For us, it’s really about getting the Neptune data from the sell-side into our mutual clients’ core workflow tools, which invariably is going to be your OMS, your data aggregator. So I think that’s absolutely key.

Brett Schechterman: As a dealing head, you have to think about how to have the most flexible operating model possible, because things will change in a year, the regulatory environments change, cyclical economic environments will change and people are being asked to do more with less. As we’ve seen even going back to last March, the markets can move swiftly, and without having a pulse or a lens on liquidity, you could find yourself in a very difficult state. We’re consistently thinking about ways to bring PM and trader more closer together, regardless of your trading operating model, so just really harmonizing the communication between portfolio construction process and the execution process.

And we really think that this offers, at multiple stages of workflows on a free trade basis, the ability to see highly relevant, timely information and smart analytics about the actual trade ideas that are being formulated in these front offices. And allowing them to think through, ‘what can I get done? Are there alternatives? Is there relative value? Can I be a price taker? And think about considering options based on how liquidity is presented to me?’

So I think that’s really where the thinkFolio stakeholder and user personas are going to be impacted by the toolkit. The ability to harmonize all these things on a common desktop is something that’s on all our minds, all of the heads at these shops globally, as well as the outsource dealing firms.

Paul Mutter: There’s many studies out focused on the high cost of data for the buy-side. And so an area that we’re very focused on is adding our data and the data of the providers we work with, together with direct dealer execution in a more cost efficient paradigm for the buy-side. And we think that if we can continue to find ways to cost optimize together with the interoperability and flexibility that we’ve been talking about today, we think that’s one of the great paths forward for the buy-side trading desk.

Dan Barnes: Guys, it’s been fantastic. Thank you very much.

Brett Schechterman: Hixton looking forward to the next one. Thanks, Dad.

Dan Barnes: Thanks very much, Dan.

Dan Barnes: I’d like to thank Brett, Byron and Paul 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.