Countering vanishing liquidity through market diversity

Published on 2 November 2020

Buy-side bond traders are finding greater autonomy in their access to liquidity through the diversity of counterparties available via electronic trading platforms. Quantifying price improvement in e-trading is challenging, but trading against the market allows greater certainty of execution, or even creates alpha opportunities.

Finding liquidity and pricing is available from a more diverse range of sources than ever before is allowing them to continue trading in volatile conditions, and letting them seize opportunities when sell-side firms might step back from the market.

Nicolas Masso and Graham Cox, global co-heads of UBS Bond Port, analyse that growth with an in-depth look at both quantitative and qualitative trends, including new market participants, the continuing expansion of sell-side participation trading and trading volume.

Dan Barnes Welcome to Trader TV, I’m Dan Barnes. In 2020 we’ve seen buy-side traders become price makers more than they ever have before. Joining me today are Graham Cox and Nicolas Masso, Global co-heads at UBS Bond Port, to discuss how they’ve seen this phenomenon occurring on their platform. Graham and Nico, welcome to the show.

Graham Cox Good to be here. Thank you.

Nicolas Masso Thank you for having us.

Dan Barnes How have you seen the effects of heightened volatility affect your clients?

Nicolas Masso I think the buy-side really has changed the way they’ve come about trading. The buy-side has become proactive. The days of relying on the dealer community to warehouse risk and provide liquidity are gone. It has become really expensive and very cumbersome for dealers to maintain pricing on screens. I think there’s been a draw, too, from pricing. I think the amount of orders that we have seen at the desk has certainly grown exponentially versus 2019, for example.

Graham Cox I think the diversity of clients engaged in electronic trading has broadened significantly. Traditionally, it was reserved to certain sectors. I think a combination of the volatility and people having to work from home has expanded that diversity.

Nicolas Masso Bond Port has been countercyclical with the buy-side. When liquidity was great and volatility was low. Bond Port was a good tool to have, but certainly not the only way to find liquidity. You know that countercyclicality made in market events, we spiked tremendously. Now, over the last, if you look about 10 years, the markets have been fairly quiet, but over the last couple of years we have become cyclical as well. The buy-side has come to realize traditional dealers are not everything. The big trade houses, the big large investment banks in the world are no longer the sole market makers. You have the QUANDS, the ETFs, the data-driven, systematic market makers. All these guys are providing pressures on screens in size, in the same way that large institutions do.

Dan Barnes And how is the engagement with electronic trading helping them?

Nicolas Masso The buy-side has felt the need to have more access to electronic prices, to be able to see and be a bit more autonomous in the finding of liquidity. On our side of the business we have almost double the last year and a half, the number of unique users trading with us. The hedge fund community has doubled. I think it is up 30 percent and that path continues throughout 2020.

Dan Barnes So what is Bond Port actually doing to make that engagement happen?

Nicolas Masso I think Bond Port provides equitable access to all participants on the platform. It really standardizes access to liquidity. It gives buy-, sell-, or traditional liquidity consumers a distribution platform to access clients globally. We operate 24 hours a day, five days a week through the same order book to execute those trades that the traditional counterparties have not been able to. And once a client has success at a new way of getting trades done, that becomes really sticky.

Graham Cox Simplistically; we empower clients to become market makers or liquidity providers. Traditionally the distinction between liquidity providers and liquidity takers has been very firm, and we’re trying to blur those lines. If we look back to March and April, not only did we see the traditional liquidity takers, turn provider, but we saw the traditional provider turning taker. So the benefits aren’t necessarily just to the buy-side. Sell-side participation has also increased significantly, but I think the behavioral shift has been much more significant on the buy-side.

Nicolas Masso We offer a unique technology that allows any participant to monitor in real-time, global liquidity through smarter routers and models, and be able to get a counterparty to the trades without having to worry about time zones, client times, or about credit lines.

Dan Barnes How would you characterize price improvements for clients?

Graham Cox I think quantifying price improvement remains incredibly difficult, particularly in the credit markets that was massively exacerbated in the March volatility that we saw, in the bid offers, and particularly in the Gogo names – the situational names blew out significantly. Looking for a traditional source of liquidity in such a name, in such volatility, the dealer has to price for that liquidity – it’s just a natural evolution of the market. In that situation what we tried to do and what the platform does, is to allow clients to become liquidity providers rather than takers.

Nicolas Masso In order to be truly unique you need that buy-side engagement, and not only engagement from a liquidity-taker perspective, but the liquidity-provision perspective. Now convincing a buy-side or a hedge fund to be proactive and showing their hand in size on the screen to be able to get executed passingly. That not only requires technology in time, but a change of pattern and behavior from the buy-side.

Dan Barnes And if I was a buy-side head-of-trading and I was looking for complimentary liquidity, because perhaps my counterparties might be a bit more risk off towards the end of the year, due to the volatility around the US election, how can I engage with you to improve their execution today?

Graham Cox I think that’s one of the benefits, the flexibility and accessibility, if you like, from a simple Bloomberg terminal, standard license where you can enter both as a liquidity taker and a liquidity provider. We have an internal UBS neo-platform that gives you slightly additional functionality, and we connect to some of the OMS’s, the EMS’s, and we have API connections. So we see ourselves as providing complementary liquidity, not necessarily alternative liquidity.

Nicolas Masso The aggregation of data by the buy-side is definitely a trend that we see growing. We’ve recently offered some new data products about the Bond Port flows pre- and post-trade data. And I was surprised when we launched the product, as I always thought it would be more than the hedge funds asking for it, and it’s very traditional buy-side, tier-one asset managers that are knocking on the door and asking, hey, can I have access to your data?

Dan Barnes Nico and Graham, that’s been great. Thank you.

Graham Cox Thank you, Dan, enjoyed it!

Nicolas Masso Thank you very much, Dan.

Dan Barnes I’d like to thank Graham and Nico for their time today and of course, you for watching. To catch up on our other shows or to subscribe to our newsletter, go to or