Buy-side firms are beginning to test the UK’s new bond consolidated tape while continuing to refine automation across their fixed-income trading desks.
Speaking to Trader TV, ODDO BHF Asset Management’s head of trading, Sven Rudolf, says the firm is assessing the tape’s data quality, pricing, and market adoption before deciding whether real-time access will justify the cost—particularly as European firms prepare for the go-live of the EU bond tape later in Q3.
At the same time, Rudolf discusses how the asset manager is fine-tuning its rule-based automation, with more sophisticated execution workflows designed to improve execution quality and reduce manual intervention, as it works towards a more data-driven and automated trading model.
Interview
Josephine Gallagher – So, set the scene for us as a head of trading. What are the top themes that are shaping your fixed income strategy right now, and what are your key priorities for the remainder of the year?
Sven Rudolf – Yes, for us it’s very important to see if the Strait of Hormuz will be really open. Heads up on this, because the third of July is holiday in the US, so Friday there will be no data, or data will come on Thursday, so the big day will be Thursday this week to see if we see already some progress or if we see if the US rates decision was the right way and all these things coming on Thursday, so that would be important for us to get a little bit of the roadmap. From a general perspective, what we’re looking at Q3 and Q4 is much more going on with our automation journey, so taking a look at how we can improve there. The next point, which is very important for us, is the data topic with the UK (Consolidated) tape coming, with the European tape coming in late summer. So we have new data points, which will help us to enhance our trading strategies. We want to take a closer look at this and enhance our trading strategy and quality. This is also on the roadmap for us.
Josephine Gallagher – Understood. So, as you mentioned, the UK consolidated tape went live there recently, and we expect the European ETF and equities tape in late July, as well as the European bond tape, later in Q3. So, what is your initial assessment of the UK consolidated tape so far?
Sven Rudolf – Yes, it’s a big thing, because they had only been one tape in the whole world, that was the TRACE US tape. Now we are coming to a UK tape. So that’s very interesting for us, because being a continental European asset manager, we are keen to see what our community in the UK is trading, so it’s very important for us, because we are sharing the ecosystem, so it’s interesting for us what’s going on there. The question is, how clean, how reliable will all this data, which we are getting there. So, currently we are waiting for information from the UK tape provider, which additional providers they will use to transform the data. We would love to see them and the big MTFs (multi-lateral trading facilities), and also on the big data systems where we can consume them from there on not only a standalone solution or another system we need to plug in the other thing which was very interesting for us is the price tag, because it should be production price only. So, what does it mean? What is the production price? So, if I would pay something at the production price, I would love to see the whole pricing model to see if I’m really paying the production costs only. This would be really interesting for to see on the one side. And given that we are not really the first mover, so we wait and see currently if it’s really providing the data and the information we need, or if we could live with a deferral, the delayed data of at least let’s say 15 minutes, or something like this, or longer deferral, depending on the traded size. This is something we want to test first. This is the same for the European tape. I want to see first, how will it be adopted? Do we have a disadvantage if we’re not going for real-time? Because if you compare it a little bit to equity markets, subscription to an exchange to get information data is some kind of cheaper than getting a consolidated data tape, right here, right now. There, I have real-time data from equities, which are trading every second. Some months might only trade once a week. Do I really need it? How much am I leveraging my investment decision, and how much input I need from real-time for my trading decisions? This is something we’re taking a closer look at and watching it, and then we will decide if we go directly for the tape or not.
Josephine Gallagher – Okay, it’s interesting to see, like, there are still some issues and still some pain points and things to kind of weave out before it can be usable, still. When we spoke last November, we talked about how you were prioritising the quality of automation over the quantity of trades for credit and liquid assets. So, how far along are you on that automation journey and what does that workflow from receiving an order to execution look like today?
Sven Rudolf – Yes, we’re still working with a one-touch approach, so if the order is hitting our blotter, we’re taking a look. Is it something for automation or not for automation? If we’re saying, okay, this is low touch, this automation, we’re sending it to an MTF, where we are using the automation tool from the MTF. We are a small asset manager, we don’t have the smart routing facility like other ones. So we are taking the advantage of the MTFs. We’re working closely with one MTF to enhance our rules, so we had first rules only to get it going. Let’s mean quantity, low touch, do the trading. Now we have developed with them more quality rules, which are taking into account. So, what’s the condition of the market? So, are there axes, are there no axes? So, what does it mean for the RFQ (request for quote)? Less people included in the RFQ going for a tighter target to get the execution. This is working very well. So, we increased our quality of execution. The thing is, it’s much more a rule-based story. So, if I’m taking quality rule number one, it’s not executed in these terms. I’m having that popping up on my screen, and I need to decide. Okay, do I want to do the trade or do I not want to do this trade? And this is something we want to enhance too, some kind of waterfall rule. So, if rule one is triggered and there is no execution, we’re going for rule two. If it’s not triggered, perhaps we will go for rule three, and at the end, I don’t need to touch anything to get the final execution. Let’s see how we can get it going. The rules are there, we only need to connect them and check. It’s a good idea. The MTF also likes the idea, so we try to see how we can implement it this year.
Josephine Gallagher – Really interesting. And now looking ahead, what is your wider vision for your fixed income execution desk, particularly over the next two years?
Sven Rudolf – We would love to see much more integration of all the points we talked about. So we will have more data, so we will have the consolidated tape with more data points, which are reliable. So it’s much more order hitting the desk, some kind of pre-trade analysis taking into account what I have done already. So the pre-traders is taking my TCA (transaction cost analysis). Taking the account information, perhaps from the consolidated tape, from other axes providers, and creating the scene, and say, okay, this is high touch, this is low touch, this is a very easy order, I can trade via automation, I have these rules. I would do, and then it’s hitting the automation and gets traded there. If it’s hitting the automation and get trading there, it would be directly going into TCA. TCA is taking information of this trade and feeding it direct back into the system. Then we can do it, can we use it for the next days. If it’s not automation, if it’s not low touch, if it’s high touch, then the trader must be focused and taking a look and see, hey, how can I handle this order, taking the information on its own. Perhaps he can use then some AI tools, which will help to screen the liquidity, the situation in the market, which gives him some kind of picture in a quicker way, where he can take a look and see what’s going on, and then executes the order manually. But then also the same story directly, TCA feeding into the system, giving it the information. Perhaps this high touch order will be low touch the next day or the next month. Then we have still the information there, and we create a kind of cycle for high and low touch order with automation in place, with the new data in place, and it looks like that the trader gets more a kind of liquidity strategies. So these tools will help them to see, is it liquid? So, do I need to touch anything? Is it non-liquid? Do I need to stress it? Do I need to take a look deeper? And this is much more the vision of what I’m thinking about for the next few years.
