Buy-side traders push for primary market reform

Published on 23 October 2019

An increased reliance on the primary market is impacting trading desks’ efficiency in secondary trading. Frustration with the issue is leading asset managers to look for a reform of existing processes. In this interview, Oscar Kenessey, head of fixed income, derivatives and currency trading at NNIP, and Eric Heleine, head of the trading desk at Groupama Asset Management, make the case for several lines of reform. These include greater sell-side support for platforms, more structured issuance of bonds, and increased responsibility for banks to make markets in bonds for which they manage issuance.

Part of the Fixed Income Leaders Summit in Barcelona, managed by WBR.

Dan Barnes Welcome to Trader TV – your insights into the trading climate for professional investors. I’m Dan Barnes. In this show, we’re coming to you from the Fixed Income Leaders Summit in Barcelona. I’m joined by Oscar Kenessey, head of derivatives, fixed income and currency trading at NNIP, and Eric Heleine, the head of the trading desk at Groupama Asset Management, to talk about primary markets. Oscar, Eric, welcome to Trader TV.

Oscar Kenessey Thank you.

Eric Heleine Thank you for this.

Dan Barnes So can I start by asking, what or how important is primary market issuance in getting liquidity in trading today? Oscar, would you like to start?

Oscar Kenessey Um, so I think the importance for us is increasing a lot, especially in credit. So, we find it harder and harder to source liquidity that we need in secondary markets. And because of that, we are turning more and more to primary markets. To a lesser extent, the same is true for governments, I think.

Dan Barnes And then what are the actual trading challenges in primary markets?

Eric Heleine It’s very time consuming on a day-to-day basis, because you have one trader’s focus on all day long on the managing of the issuing that you can have on the trading desk. It’s very time consuming because they populate a lot of information for PMs, but also they populate a lot of information from different people involved in the syndicates. This is why we are very focused to find some digitalization process like platforms to optimize the workflow, to securitize workflow, but also to optimize the time of the traders involved on the issuing market.

Eric Heleine It’s not really trading what we’re doing there. Of course, there’s negotiation, certainly if you look over multiple primary issuance. Personally, I feel that, in a certain sense, it’s to sell-side as well as the issuers, it’s their party. They control the rules of the game. I’m personally liking secondary markets trading. I’m not too fond of this development that we’re increasingly forced to take our liquidity from primary markets.

Oscar Kenessey Well it’s true that to a degreee, the sell-side is managing the game. And sometimes we would like to improve the process to add in some new digitization workflow and so on. They are sometimes not at the rendezvous.

Dan Barnes If you had sort of an ideal primary market scenario, what might that look like, do you think?

Oscar Kenessey If you have one place that’s aggregate, we’re gathering all the data, all issuing in one place, so you can consume all information that we need. You can create bespoke research. You can also send our instruction to the syndicates, it’s very useful. The big challenge that we are facing this month is to build the last match between the information collected through a website like IPO. Sending some details from PM, receive order from the PMs in our management system. After that you need to replace the order by phone or by chat. It’s quite challenging, because we need to bid the last to arrive, to have the fullest TP process, and to avoid to pass another call to different banks, or maybe it’s user approval, fx for us to summarize our interests. But after the centralization we need to receive the allocation by STP-process, and we work a lot with some vendors to find some solution to fill the gaps and to have a full STP process. And after the challenge that you are facing, we have seen that some of our platform would like to come into the game. And it’s far, the buy-side perspective is quite challenging because we don’t want to manage different platforms.

Eric Heleine From that perspective it would be good if some of the dealers that don’t  support certain platforms, if they would come on board as well.

Dan Barnes And then that STP process the does the heavy lifting on the primary markets, which means that traders can focus on the secondary markets, presumably, then?

Eric Heleine Oh, absolutely. The central problem is, of course, the problem of allocations, how the process around the allocation system.

Dan Barnes So I think we’ve outlined what could be a potential sort of scenario that would be better. What do you think the steps would be to try and get to that stage?

Eric Heleine I think it has to do also with another phenomenon of the bund markets. We have too many bunds. It would be, in my opinion, much, much better if corporations issuers tapped bunds a lot more. If corporations issuers would more actively look at mainly, maybe early redemption’s, et cetera, so they could manage a much more concentrated bundportfolio, if they would have the confidence that they will be able to do that.

Dan Barnes And so we need to bring sort of the motivations of the different players together to form a consensus? Who is actually driving change today? Who do you see driving change?

Oscar Kenessey I think the buy-side try to drive the change. I think the issue is still on the end of the bank. I think that when you see the tracking of a preview of a new buy-side, they’re coming into the pool. It’s good news to demonstrate that the buy-side also needs to be a part of the discussion.

Eric Heleine We are too often in situations that the dealers that were part of the issuance of bunds may go back to them, they are not actually actively making a market in that paper. And that’s one avenue the markets could explore to reinstate that behavior.

Dan Barnes That’s very good. Eric, Oscar, thank you very much.

Both Thank you. Dan.