Direct API connectivity between dealers and the buy side is gaining momentum as firms seek lower trading costs, reduced information leakage and more efficient execution workflows, says Asa Beach, executive director at FICC e-Sales.
Speaking to Trader TV at the Fixed Income Leaders’ Summit in Boston, Beach discusses where API connectivity looks to enable traders to access dealer inventory and liquidity directly through their execution platforms, to improve reaction times, trading speeds and market visibility.
He also shares where JP Morgan has seen a rapid growth in adoption, adding that the firm’s electronic API trading and direct connectivity volumes have doubled year-on-year.
Interview
Josephine Gallagher – Welcome to Trader TV. We’re here at the Fixed Income Leaders’ Summit in Boston. I’m joined by Asa Beach, executive director at FICC e-Sales. Asa, welcome to the show.
Asa Beach – Thank you very much. It’s very nice to be here.
Josephine Gallagher – Excellent. So we’re seeing a sizeable shift towards direct connectivity and particularly API client-dealer connectivity. So, what are the drivers behind this?
Asa Beach – I think one of the leading drivers of the direct connectivity initiative is allowing the buy side to have clear, clean data from the dealers. When I say that, we have the ability to stream our inventory or algo axes into clients who have either built a proprietary EMS (execution management system) or have gone down the road and bought a third-party platform. I think the ability to aggregate this data in a single workstation has been a driving force, along with the cost benefits and the minimization of information leakage when looking to engage on some of these, you know, axes and inventory and market data that’s going through the system.
Josephine Gallagher – Excellent. Now, when we’re thinking about direct connectivity, like what does that actually mean for the trader itself when it comes to you know, a technical standpoint and from a workflow standpoint?
Asa Beach – Right. So for the buy side, they have an OMS (order management system), and the OMS is where all the orders are staged, and the portfolio managers are submitting. And so, by having direct connectivity, it allows for the traders to identify trading opportunities that are coming through the API, and they can react faster. They should be getting a better sense of the overall market and market depth, and they can, you know, either use that information to share colour upstream to the PM, or they also have execution capabilities. So they can click to trade a firm algo stream, or they have the ability to see a large axe of 10 million and engage the line trader directly, which is something that you can’t do on another third-party trading platform. As well, you can have the opportunity to send a bilateral RFQ to any dealers who have this API protocol.
Josephine Gallagher – Okay, and now when we’re thinking about direct connectivity as well as trading venues, third-party trading venues, obviously with third-party trading venues, the pros in this regard are, you know, you get transparency, you get, you know, addressable pricing information. So, walk me through some of the pros and cons between both.
Asa Beach – Right. So everyone is looking to find the best liquidity where they can, and whether that’s on a streaming ECN (Electronic Communications Network) or if that’s sending an RFQ (Request for Quote) on a multi-dealer platform. The API gives you the flexibility to consume our streams directly into your EMS, and you can see the stream without a platform markup. ECNs charge a markup, trading venues charge a markup, but when you’re executing a trade through our API, whether that’s through streaming algo liquidity or us responding to an RFQ, you’re getting that price, and you’re not getting charged an extra fee. So that’s an inherent cost savings, as well as the prevention of the information that is leaked by sending RFQs to a large open network can sometimes, down the road cause price decay on some of the names that you’re looking to trade.
Josephine Gallagher – Okay, now looking ahead, how do you see direct connectivity evolving further, particularly when it plays into like you know integrated into EMSs? How do you see its role?
Asa Beach – Yeah, I mean, the direct connectivity initiative and something that’s been talked about for five plus years has really started to gain momentum. You know, we currently are doing about 14% of our business e-business, electronic business through an API. In 2024, that was 7%. So I think there are a couple of things that have helped with that. One, the buy side is just becoming more sensitive to the costs of trading. They’re also cognizant of the prevention of information leakage. They also are looking to just find more efficient ways to trade, and so they are looking to aggregate data through third-party EMSs, or they’ve built their own proprietary systems to give to try to give their traders an edge and try to find alpha where they can, and so I think that you know going forward we’re seeing a pretty large pipeline and interest from clients who are looking to either build a proprietary EMS or to buy a third-party provider, and we’re starting to we’re starting to see other dealers also start to want to support these protocols, and I think ultimately for this to be successful, we need you know everyone on board, both the buy side willing to put the money and invest, and the dealers community to be able to support the protocols.
Josephine Gallagher – Interesting. And you know it’s interesting to see how this can evolve further. Asa, thank you kindly for joining us.
Asa Beach – Thank you very much for having me. Appreciate it
Josephine Gallagher – I’d like to thank Asa for his insight, and of course, you for watching. This has been Trader TV at FILS.
