Hannah Baum, head of FICC E-commerce and sales for Europe, the Middle East, and Africa, at JP Morgan tells Trader TV that growing third-party platform fees and margin compression across the buy side are fuelling greater demand for direct connectivity to dealers.
The sales head says there are various ways in which asset managers can circumvent these increasing costs by using application programming interfaces (APIs) for streaming prices, and axes, and trading directly with the sell side.
Baum additionally unpacks what this direct connectivity also means for dealers, their bottom line and their relationships with the buy side.
Interview Transcript
Jo Gallagher Welcome to Trader TV, your insight into institutional trading, I’m Jo Gallagher. I’m here at the Fixed Income Leaders Summit in Paris, and I’m joined by Hannah Baum at JP Morgan to discuss how streaming prices and algo development are shaping fixed income. Tell us to start off with, how trading desks are leveraging APIs for prices, axes and algo orders.
Hannah Baum We currently offer direct connectivity for a number of different products at JP Morgan. So as an example, we have the US Treasury, European government bonds and a number of different credit products. We offer a number of different trading protocols that clients can use to match their needs. As an example, a client can click and trade on a two way firm stream, or they can launch a JP Morgan algo for US treasuries as an example from an EMS or OMS of their choice.
Jo Gallagher What material impact does that have then on trading performance?
Hannah Baum So I think there are multiple benefits for clients in this direct connectivity play. As an example, I imagine transaction costs will come down overall because there’s no third-party fees being incurred during the transaction. Secondly, I’d say the accuracy of prices and axes. We can be a lot more bespoke in how we price our end client because it’s a client-by-client connection and so we can make sure that in terms of accuracy, we are at our most accurate when we’re pricing clients directly.
When it comes to real-time data axes, clients can use that for both pre-trade and post-trade TCA to improve their overall trading behaviour. And lastly, I’d say scalability so clients can scale up across the firm based on the EMS or OMS they’re using.
Jo Gallagher And what does that API connectivity then mean for you and your relationship with the buy side?
Hannah Baum So if we consider the current fixed-income microstructure, in the last two years we’ve seen an increase in electronic trades that we’re processing as a bank. And the notional on those tickets has come down. What’s also come down is the value extraction, because we’ve seen spread compression across the market based on the increased competition we’ve seen. In addition, if we look at the fees that we’re incurring via the third-party platforms where we currently meet our clients, they’re going up. And we’re also a little bit restricted on what we can price our clients because of the tearing infrastructure that currently exists. So with that dynamic at play, if we think about a bespoke solution that we can provide to our end client. We can do this whilst reducing our overhead costs, it should mean a better trading experience for both us and our buy-side clients.
Jo Gallagher How do you see the space and these services developing further?
Hannah Baum I imagine we’re going to see greater adoption of clients asking for their market makers to price to them directly. That could mean more market adoption more broadly. With that may come a wider breadth of products that are being offered by direct connectivity and more trading protocols as clients ask dealers to match how they want to improve their trading efficiencies.
Jo Gallagher I’d like to thank Hannah for her insight and of course, you for watching this being Trader TV at FILS.
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