Speaking at the Fixed Income Leaders’ Summit in Amsterdam, Sven Rudolf of ODDO BHF Asset Management discusses two major industry priorities: the need for greater on-screen liquidity in the fast-growing credit futures market and better execution transparency in bilateral trading.
The head of trading also shares the latest details on his buy-side’s fixed income automation journey, noting the firm’s focus has shifted “from quantity to quality” in the execution of its trades.
Interview
Jo Gallagher – First off, we’re here at the Fixed Income Leaders Summit (FILS) in Amsterdam. What are some of the interesting fixed-income execution styles and changes you’ve seen over the last year?
Sven Rudolf – Yes, we had, yesterday, an interesting workshop and think tanks about new protocols. That means, not only RFQ (Request for Quotes), also bilateral trading, direct connectivity. We are talking about new products, credit futures, especially so, going away from OTC (over the counter), going for Exchange Traded Products, and on the other side the regulatory landscape, that means transparency which is coming. So what does it mean for the community, if you have a consolidated tape? Does it improve liquidity? Would it be something like Trace (the Trade Reporting and Compliance Engine)? And these were some of the major topics from yesterday.
Jo Gallagher – There’s been this big interest in credit futures recently. So what needs to happen in order to improve liquidity and grow that space?
Sven Rudolf – Yeah, we’re seeing that credit futures are the rising star in the credit derivative space. So last year, we had 20 billion overall in one year. Now we have until summer, 90 billion in credit futures with a split, 2/3 for US, 1/3 for Europe. On the other side, you see a declining demand in Total Return Swaps, which are going down. So people are really keen to use this new product. What we want to see is much more screen liquidity. We see already block providers popping up. We more buy side counterparts stepping into the product (space), so we know that the block liquidity is there. But it’s also nice to see the liquidity on screen to make it much easier to use in your OMS (order managment system), easier for the evaluation and for the tracking of the performance.
Jo Gallagher – Another big theme is the growth in bilateral trading and these new ATSs (alternative trading systems) coming on the scene. So how much of all of that is playing a role in your own execution and trading strategies?
Sven Rudolf – Yeah, currently, we’re using the RFQ protocol, so we’re looking at streaming prices to get a better execution. We would love to have a new platform, an alternative platform, which offers you the bilateral trading, which then also gives you a proof of best execution for the protocols, not only for the final pricing, and this is a big topic in FX, for example, but for fixed income trading it’s at an early stage. There are some providers pushing it now. Let’s see where we stand next year.
Jo Gallagher – The last time you were on, you spoke about your automation and electronic trading journey. So where is that at?
Sven Rudolf – So the journey for automation with quantity is done. We’re moving really from quantity to quality. The first thing was we had too many tickets. How can we do automation for low touch now the question is, how can we increase the quality of these low-touch tickets? So we are looking at the automation to get tighter price targets, better dealer selection, and smarter routing. And this is something we’re currently working on. It’s going in the right direction, and we hope that we are doing the next step next year.
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