Getting onboard APAC’s revolution in automated bond trading

Published on 13 December 2023

Trading activity in Asia Pacific (APAC) bond markets is being accelerated by hedge funds and asset managers engagement with swaps and cash bonds, alongside greater dealer auto-quoting which allows for more efficient execution.

With automation increasing in JGBs, Australian and Chinese markets, indexing is also a driver for efficiency in trading and with India likely to join the JP Morgan index next year it may well see growth in 2024.

Laurent Ischi, director for AiEX and Workflow Solutions for APAC at Tradeweb tells us how the trend is spreading and expanding in the region.

Transcript of interview:

Dan Barnes: Welcome to Trader TV – your insight into institutional trading. I’m Dan Barnes.

Asia Pacific is going through a revolution in automated fixed income trading. Joining me to discuss this trend is Laurent Ischi, director of AI and workflow solutions at Tradeweb in Asia Pacific.

Laurent, welcome to the show.

Laurent Ischi: Great to be here.

Dan Barnes: First of all, what’s driving trading activity and automation in the Asia-Pacific bond markets?

Laurent Ischi: I think there’s a variety of things done. One is the asset manager industry has seen an increased adoption of automation because they need to do more frequent and continuous rebalancing of their portfolios. The other thing that has been very exciting is we’ve seen an increased amount of hedge funds starting to adopt automation in the APAC region to trade swaps more efficiently. Last but not least, this has also led to changes on the dealer side which have started to automate. They are quoting capabilities as a response to that. So to sum it up, essentially what we are seeing is some people use it to gain efficiency, while others are using it to implement particular trading strategies.

Dan Barnes: And in which markets are you seeing the greatest levels of automation?

Laurent Ischi: So when I got to Singapore about two years ago, Australia did about 10 to 15% automation in terms of the trades done in Australian government bonds. Now we’re at 40% plus. That has certainly been the biggest growth area.

We’ve also seen big increases in [?] And more recently in China government bonds, which we have started to roll out to customers earlier in the year. Now we think that this is a trend that will continue. And we’ve seen clients already adopting automation in swaps, CDS and other products. We also think that clients are looking ahead to other markets. So we know obviously that India is going into the index. While obviously the initial trading may be manual, they are definitely considering automation and how it’s going to fit into that workflow. We also see automation for the Southeast Asia government bonds like Singapore, Malay, Indo and Thai.

Dan Barnes: How is automated trading helping firms achieve their investment and their trading goals?

Laurent Ischi: You can implement trading strategies that you couldn’t otherwise necessarily implement. So, for example, systematic hedge funds, they like to use the automation because they can actually mirror what they do in other asset classes, and they can expand it to RFQ-based markets. On the other hand, with the asset managers, for example, they like automation because it’s easy to do more with the same amount of people. Or if people are off desk, they can benefit from scalability, right? It’s a big topic in the industry. ‘How can you do more with less or the same type of resources?’ Now what’s interesting there is they are using two trends, one-touch workflows, where they take orders and say like this, ‘do I want to automate this order or do I want to trade manual,’ but some are actually going further and implementing certain no-touch workflows where they wouldn’t actually even touch a certain type of order anymore, just because they have confidence in automation capabilities and using them to the maximum possible.

Dan Barnes: What do you see driving growth in the future?

Laurent Ischi: So greater index inclusion is definitely a big growth area which will give geographic expansion as well, right. And then in particular I think on the swap side and on the CVS side, we’re going to see more and more people adopting it. They are, in principle, liquid products where you can actually automate more and more because of the trend that we’re seeing on the sell side as well, where they are actually stepping up their automation capabilities.

Last but not least, as mentioned before, Singapore, India, Thai and Malay is something where we already see some automation. We think that there is going to be a lot more to come in the next year.

Dan Barnes: A question I know a lot of traders will ask, ‘how easy is it to integrate automation into the trading workflow?’

Laurent Ischi: In principle, it’s quite simple, and one of the reasons why I moved to Singapore from London is to be able to be in the region and help our customers do the automation and actually help them understand the workflows that we offer, and also understanding their workflows so that we can help them implement automation where it actually fits. It’s very important to get the fundamentals right for these customers, but once they have started with a product that they are comfortable with, scaling it and expanding it to different products, it’s very straightforward and we’re obviously here to help them through that process as well.

Dan Barnes: Laurent, that has been great. Thank you so much.

Laurent Ischi: Thanks, dan.

Dan Barnes: I’d like to thank Laurent for his insights today, and of course to you for watching.

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