Buy-side desks are navigating major structural changes driven by technological advancements and evolving policy landscapes. Leland Price, executive director FICC Market Structure at JP Morgan, speaks to Trader TV about ongoing regulatory shifts and how the growth of E-trading is reshaping liquidity provision, with increased use of bilateral streams in rates and RFQ, portfolio trading, and ETF protocols in credit markets.
On the policy front, market participants await revisions to bank capital frameworks, including adjustments to the Supplementary Leverage Ratio and broader Basel III and GSIB surcharge reforms. Treasury market structure remains under scrutiny, particularly around clearing rules and systemic risks linked to basis trades.
And April’s volatility underscored market resilience, bolstered by five years of technology improvements and participant adaptability.
Interview
Jo Gallagher What are some of the big structural changes impacting buy-side desks today?
Lee Price Yeah, so at JP Morgan, my team is focused on what’s shaping provisional liquidity and how market participants access it. So generally, it’s things that change the status quo from a trading perspective. That can often relate to technological advancements that shift liquidity provision or policy changes that impact the rules of the road. But I think it’s fitting to be recording here in DC because you have a sweeping change within regulatory agencies from a perspective, and I think the new administration had campaigned on a deregulatory approach to markets, and I think market participants are waiting to see how that develops across a number of areas.
Jo Gallagher on the policy side, what are some of the big developments that you’re monitoring across fixed income?
Lee Price, Costs of capital has been top of mind for many, so I think the industry is largely in agreement that the bank capital framework as it exists today is in need of revision. If you’re looking at statements that have been made by the official sector, I think proposals will focus on supplementary leverage ratio changes in the near term, and then probably more detailed and broader revisions to Basel III and GSIB surcharge over time as well. Outside of the kind of bank capital, you’ve got a lot of focus on the Treasury market. Treasury clearing has been talked about a lot. The SEC’s final rule has been pushed back. But I think it’s one where we’re seeing increased focus on market structure changes related to that. And then when you have market conditions like in April, where there’s stress in the markets, it brings a focus to the resilience of the Treasury Market to hold up to stress market conditions. So some of the discussions that are out there often relate to things like leverage in the system, whether there’s systemic risk, the role of non-banks, and the basis trade is one that gets a lot of attention. You know, whether that’s warranted or not. So those are some of the things they were tracking.
Jo Gallagher I’m really glad you mentioned the April volatility. What were some of the big themes you took away from that episode?
Lee Price Yeah, well, aside from there being record volumes in many fixed income products, so, you know, treasuries and corporate bond trading, you know, kind of single day volumes come to mind there. There was a lot of kind of focus on, all right, well how is, you know, the April market conditions different than what we saw in March of 2020. So you’ve got basically five years between, you know, that COVID-driven market stress versus what we saw in April. And I think, you know, broadly the markets held up very well. Liquidity, you know, was able to withstand some of those conditions and you know to me it makes sense when you’re talking about five years that’s a long time in terms of both advancements in technology and you don’t market participants ability to kind of adapt to some of the policy-driven structural changes we’ve seen in the market.
Jo Gallagher and so looking ahead, what are some of the big tech advancements to be kind of paying attention to, and that will help and aid with liquidity provision?
Lee Price I think data driving some of the E-Trading trends we’ve seen both in rates and credit markets has been very significant, and we’ve got more and more protocols that can be used by traders to say, okay, well, if it’s in rates markets, is there an increase in E-trading that results in use of bilateral streams? In credit markets, you’ve got the RFQ (request for quote) protocol that has launched the ability to do PT (portfolio trading) and ETF (exchange-traded funds) trading to more efficiently move lists or packages of bonds. To make a general statement, our clients have become more cross-asset. They’re looking to use these tools and this technology to their advantage, and I think they’re leveraging more and more of what’s out there to do that.
Jo Gallagher I’d like to thank Lee for his insight, and of course, you for watching. To catch your other shows, including Trader TV This Week, every Monday at 6.45 am UK time, go to TraderTV.net
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