Kate Finlayson, head of FICC market structure and liquidity strategy at JP Morgan, discusses the key themes impacting fixed income buy-side desks in 2025, including evolving trade data transparency, liquidity shifts, and complex regulatory developments.
Diverging transparency rules across the EU, UK, and US, she says, could have global implications for market participation and trading decisions. Particularly, with the anticipation of a UK and European bond consolidated tape in the 2026. Finlayson also looks at the key regulations, such as EMIR III, Dutch pension reforms, FSB recommendations, and Basel III, and how they will shape trading strategies, liquidity provision, and tech adoption
Interview
Dan Barnes: Which themes should buy-side heads of trading have top of mind this year?
Kate Finlayson: Well, there’ll be drivers influencing the levels of trade data transparency and shifts in liquidity patterns based on risk provision and market regulation. All of this within this ecosystem where we’ve seen regulatory divergence across jurisdictions, so heads of trading will have to assess what the implications of these various drivers may be for their trading desks, so that they’re best positioned for them
Dan Barnes: Very good. On the topic of transparency, why could that potentially be tricky?
Kate Finlayson: Well, it looks like we’re going to have a bond consolidated tape in the EU and the UK next year. The tricky bit comes in when you look at the transparency regime or the rules that underpin those tapes. Essentially, when a trade gets printed, how quickly. Post the MIFID II review, the transparency requirements have changed, so that we have landed with different rules in the EU to the UK. So you have a trade in a particular size, a particular instrument that will be traded in the EU and printed within 15 minutes in the UK. That same trade we printed two weeks later, and in the US couple of months down the line. So you’re going to have this divergence there in terms of the information that will be available. And the crucial bit here relates to market impact, information leakage. Market participants will then be assessing, okay, how do I need to trade? Who do I need to trade with, and where do I trade? So it is impactful, for sure.
Dan Barnes: Turning to some of the regulations, which rules will be directly impacting buy-side firms over the next 12 months?
Kate Finlayson: There are quite a few, and some of them run concurrently, or certainly there are multiple elements at play which adds complexity. So if we look at derivatives, the active account requirement under EMIR III is now live. So EU fund managers are having to assess what they need to move across from their derivatives portfolios from a third country CCP, let’s call it LCH, to a EU CCP like Eurex LCH EU and others, and assess what that means for their portfolios, what that means for netting benefits that they might lose, and other considerations on top of, of course, the basis between the two clearing houses. And then this is set against the backdrop of Dutch pension fund reform. In the Netherlands, they’re moving from a defined benefit scheme to a defined contribution scheme, and that transition is taking place in tranches. But the deadline is the first of Jan 2028 so the Euro swaps curve will be an interesting one to keep an eye on, there for sure. And then I would say another element is the focus on the basis trade and hidden leverage in the system. Whenever there are periods of market volatility, it’s often the go-to, to say, ‘Well, what happened there with the basis trade?’ And we have seen global policymakers put forward various recommendations. The FSB has put out nine recommendations fairly recently as to how hidden leverage could be addressed, and some of those activity-based measures include minimum haircuts, central clearing. So they are just recommendations, but to the extent any national regulators look to implement them, then clearly there are some considerations there in terms of impact or relative value strategies, the impact of the basis trade itself. And the Bank of England will be taking a look at this topic as it relates to the Gilt market.
Dan Barnes: Very good in terms of other rules. Is there anything impacting buy-side firms more indirectly?
Kate Finlayson: So I would say bank capital reform stands out as being the most impactful. From an indirect perspective, there’s been a lot of focus on what prudential requirements could be adjusted to enhance intermediation. Most people have referenced the US Treasury market in that regard. But certainly we’ve seen the proposal for SLR reform. Market participants are now keeping their eye out for G SIB proposal, Basel III, end game proposal. So we may see something before the end of the year, but possibly start of 2026, and depending on what we see, what’s in those proposals that could materially impact the provision of liquidity across asset classes, not just US Treasuries. So I’d say that is an indirect element. The other one I would point to, which is not always front and centre, is just looking at emerging markets. We know that market participants continue to seek, in the search for yield, how they can. Access emerging markets, even frontier markets. And so where we have policymakers looking to ease access requirements to encourage foreign investor participation in those markets, whether that’s to facilitate bond index inclusions or to really enhance onshore liquidity, those requirements could then start to add up and actually make some tangible inroads for foreign investors to gain more exposure to those markets as well.
Dan Barnes: That all makes a lot of sense in terms of what firms are responding to. What are they actively doing on the desk?
Kate Finlayson: Well, the automation of workflow processes can introduce execution efficiencies and can work to optimize outcomes and certainly facilitate that. So we see how firms are changing, the way they engage and access liquidity, how they consume data, how they move risk and how they manage their portfolios. I would point to direct connectivity. We have seen substantial growth there, and I’d even point to how protocols are changing, so click to trade in particular is one that’s been interesting to note. And in my team, we also look at the tech stack front, the development of EMS functionality. And I think there has, in the past, been perhaps more of a focus on build as opposed to buy. We do see that starting to shift as some of the third-party providers make incremental traction on that front. And then there’s portfolio trading, whether it’s “Liberation Day”, and the volatility and observations in that regard, portfolio trading, in terms of the growth of it is proportional to total electronic volume, but also the use cases, so cross-currency, cross-asset, that is expanding exponentially as well. So it is turning out to be the most multifaceted tool in the toolkit. For sure, it’s really interesting and exciting space to be in fixed income markets, so it’s a thrill that we get to speak to clients about these topics.
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