Head of trading talks bond market “frenzy” and transforming your execution framework

Published on 20 May 2024

Eric Heleine, head of trading desk and overlay management at Groupama Asset Management

Eric Heleine, head of trading and overlay management at Groupama Asset Management, discusses the latest movements in Meme stocks, such as GameStop and AMC, driven by retail investors.  He also unpacks the recent bond market “frenzy” in European primary markets and looks at what could influence trading activity this week.

On broader themes, the head of trading shares his views on the rise of new electronic platforms and alternative trading systems seeking to disrupt the market and combat the growing liquidity challenges facing buy-side firms. Furthermore, he offers a deep dive into how Groupama is adapting its execution framework and proprietary technologies in response to the growth in electronification and automation.

In this episode, Heleine also provides insights on how the firm adjusts its trading strategies to cope with periods of market stress and how the buy side can be more effective at driving change in market structure.

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Interview Transcript

Jo Gallagher, presenter Welcome to Trader TV This Week your insight into how the trading desk can prepare for the week ahead. I’m Jo Gallagher. Today I’m joined by Eric Heleine at Groupama to discuss the main topics and events leading this week. Eric, welcome to the show.

Eric Heleine Great to be here Josephine.

Jo Gallagher, presenter To kick us off, what can we expect from markets this week?

Eric Heleine Last week we have seen in the US the re-emergence of retail investors. The high magnitude move has been impressive on retail factors. Even if institutional investors are better equipped to deal with Meme stocks, this sequence last week has been painful for hedge funds. On GameStop and AMC, S3 partners have reported a mark-to-market loss topping one billion this month. Nevertheless, we have seen some unwind of these bets at the end of last week. With the ratio hedge fund VIP basket versus most rolling shorts baskets printing minus five at the end of last week versus minus ten earlier last week.

This week we are awaiting the Nvidia earnings release. Like a big rendez-vous for the markets. The fear of missing out remains a strong catalyst for the market trends.

Last week, also, the bond market have been very busy with a combination of end-of-earnings season relative empty calendar and favorable credit conditions. European primary markets saw a frenzy of syndicate bonds since Tuesday last week, resulting in more than 36 billion equivalent of insurance. That’s put the volume in sales over the first two days of last week, like a record for the month.

Notice that the previous Tuesday was the second busiest day ever in the primary IG corporate market with 13.4 billion of new insurance.

Jo Gallagher, presenter More broadly, where do you see the biggest disruption to market rules and the use of electronic platforms?

Eric Heleine The biggest disruption is seen in liquidity challenges and the integration of the new platforms. Liquidity remains a daily challenge for the buy-side trader to answer best execution expectations and reduce implicit costs. In equity, it’s about the importance of the last 30 minutes and asking the question of how to resolve the issue during the rest of the trading session.

In Europe, the liquidity challenge is so significant that increasing the number of liquidity providers is vital. We are witnessing the emergence of new liquidity providers offering a fresh source of liquidity. The key challenge for us on the buy side is creating seamless interoperability between this new stream and our smart routing capacities.

An Optiver study, disclosed during the Trade Tech highlighted that a quarter of buy-side send more than 10% of their flow to the market maker. The beauty of that it’s easy to assess the new bilateral liquidity toxicity.

It is important to understand when you are trading more in bilateral flow. If you are increasing the price reversion. Your chance of delivering good execution for the clients is important. The new non-bank player first historical player to improve their trading capacities. At the end, it’s a positive trend for the buy side to have more opportunities.

Jo Gallagher, presenter How are you adapting your technology and your execution framework in response to the growing number of platforms?

Jo Gallagher, presenter We are adapting by announcing our EMS with multi-API connectivity and real-time data processing. This allows us to optimally sweep data to our liquidity before accessing the broader markets. The future lies in smart routing systems that leverage pre-trade cost models and real-time market data, ensuring that we make the best trading decisions efficiently.

We want to leverage the capacity of the different platforms to open their infrastructure to facilitate our order execution, you know, internal training system. To do this, we need to make improvements to our proprietary system to deploy more and more execution efficiency by leveraging the different workflows provided by different platforms.

The challenge is to do more with less manual interaction by centralizing our tooling capacity. We have reduced the spread consume on the low touch activity workflow [by] 50%, and we have traded 70% of our rate orders in less than 5 seconds at the mid or better.

Jo Gallagher, presenter And how do you adjust your trading strategy during periods of market stress?

Eric Heleine During market stress, liquidity often dried up, leading to increased volatility. Rapid execution strategies become essential, while passive strategies like VWAP and TWAP  should be avoided.

In the bond market, algorithmic pricing may halt, disrupting continuous liquidity access. The seniority of traders combined with pre-trade tools to source inventories of the sell side are key factors to find some solution when the liquidity disappears.

Jo Gallagher, presenter How can the buy side drive change in market structure?

Eric Heleine The buy side can drive market structure change by engaging with regulatory and leveraging by association to address industry constraints. The challenges are the resources and the time. I guess that the potential is bigger when you are in the best execution than in the best selection.

The buy-side should lead the fixed-income market structure enhancements because it’s crucial to avoid market outage when the condition becomes stressed, the emergence of the new liquidity provider from ETF or hedge funds compels traditional players to upgrade their trading capabilities.

We can also imagine that the buy side will become more [like] liquidity providers than now. To address the challenge, we need to improve our capacity to smart route efficiently when we can provide liquidity to the markets. By enhancing trading capacities, analytics, and execution protocol through EMS, we can empower the new generation of buy-side traders to demand more from their counterparts.

Jo Gallagher, presenter Thank you, Eric, for your insights and of course, you for watching this has been Trader TV This Week.

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(execution framework, frenzy, bond market, trading)