New trading protocols deliver better execution for buy-side traders

Published on 28 July 2020

In 2020 head traders are prioritising the tools that their traders have and the skills needed to use them, in order to broaden their execution choices. From portfolio trading to auto-execution, these protocols are enabling better execution in a wider degree of market conditions.

More choice requires better decision-making, and so a new trading protocol has to be integrated into their workflow and fully understood to minimise the impact of decision-making on their most precious resource, time. By delivering best execution to their end clients, buy-side trading desks are reducing investment costs and boosting alpha generation. Iseult Conlin, US Institutional credit product manager at Tradeweb, says that trading desks can and should be engaging with these new tools right now.

Dan Barnes Welcome to Trader TV, I’m Dan Barnes. In 2020 buy-side traders have used different trading protocols in the bond markets to get best execution for end investors. Joining me today is Iseult Conlin, US institutional credit product manager for Tradeweb, to discuss how those protocols can be best used on the buy-side trading desk, how they can be on-boarded, and the advantages they give for investors. Iseult, welcome to Trader TV.

Iseult Conlin Thank you so much for having me, Dan.

Dan Barnes So tell us, how have you seen trading priorities change this year?

Iseult Conlin It’s a great question. And I always look at this from the perspective of taking a step back and looking at the evolution of trading that’s really happened over the last decade. And three themes really come to mind, to me, which is; one, data, two, technology, and three, workflow efficiency. What I think is happening is that trading desks are looking at all of the tools and protocols that their traders are equipped to use. And so with this work from home environment that we’re all in now, it becomes extremely important for virtual communication, virtual collaboration. ‘How do I do the same things that I used to be doing on a trading desk, but doing them from a work from home situation?’ So, I think right now priorities have really shifted to do all my traders have the right tools? Do they know how to use those tools? Newer trading technologies and newer protocols that allow for certainty of execution, things like portfolio trading or auto-spotting and auto-hedging, or net spotting, which is unique to Tradeweb. Things that allow for that certainty of execution were really needed this year, especially during that March volatility where the market was a little bit haywire. So I think that’s where heads of trading and sort of trading desks, both on the buy-side and dealer community are looking. It’s, ‘do my traders have the right tools to do their job to the best of their ability?

Dan Barnes What effects are those trading protocols that you mentioned having on execution?

Iseult Conlin We understand that every trader’s workflow is different and so you have to provide tools for the entire trade lifecycle. So whether that’s a trader bilaterally processing a trade they’ve done over chat to avoid any operational risk, whether it’s a trader that needs to trade hundreds or thousands of tickets very quickly, be an auto-execution protocol like AIX, or it’s, ‘I need to move a large block of risk discreetly via portfolio trading to where you go and talk to a small number of dealers’ –  traders need that choice and flexibility in terms of what’s available. And if anything, these things are really helping in that best execution decision, aiding in sort of alpha-generation. And ultimately, I always like to say, ‘if you aren’t using these newer technologies and protocols to aid in that trade execution, why aren’t you?’ Because there’s nothing really stopping us from doing that.

Dan Barnes And where do you see traders struggling at the moment on a day-to-day basis?

Iseult Conlin So it’s such a loaded question and a great one. In my past experience as a trader, but also now when I go and visit clients, you stand over a trader’s desktop and you see five screens and hundreds of chats and pop ups and alerts and windows and information. And it’s so impressive that a trader is able to handle and multitask that amount of information. But ultimately, I really think traders struggle with time and sort of that information management and information analysis. And so providing tools to traders to expedite their workflow, make it more efficient is really important given everything that they’re struggling with day to day. The other thing I would note that is interesting, and I’ve seen this evolution over time, is that the skill set of traders and the diversity of a trading desk, and sort of perspective of thought continues to evolve. So you may have traders who are very skilled in technology, but then older generation traders who are skilled in understanding credits and balance sheet. And I think that the trading desks that are going to stay competitive are those that kind of have that diversity of skill set. But I really do think traders need to be well equipped to understand all the different tools available to them, and what’s best used for certain situations or environments. And that’s what we kind of think about a lot at Tradeweb and we try and actually put data to it.

Dan Barnes If we were to talk about some of the specific protocols and the actual advantages an end investor would see as a result of traders using them. Could you give examples, perhaps for auto-execution and portfolio trading?

Iseult Conlin When we think about both of those protocols, which are fairly new to the marketplace, it really is, ‘what is your end goal for the investor in terms of this trade?’ So there may be sort of a game loss program or trades that need to be done very quickly, and you have limit prices on all these trades and you need to execute hundreds of thousands of tickets. That’s where an auto-execution protocol would be very useful, and we see a lot of usage of that going forward, especially with sort of the advent of more algorithms, and sort of quant-based-type market making. But on the other hand, you could have a portfolio trade where an investor wants to do a very large trade that has the potential to be market moving, and so you want to do this discreetly with a few dealers, potentially put them in competition for best execution purposes. But it ultimately goes back to sort of my original point of, are we equipping these traders with a clear understanding of all these different protocols? How they can be used in the marketplace, how they can ultimately aid in sort of alpha generation and returns for that end investor, and using the right protocol will absolutely do that.

Dan Barnes What are desks’ needs in order to engage with these new models?

Iseult Conlin There’s nothing stopping trading desks from utilizing some of these newer technologies, especially on the buy-side and deciding, ‘does it fit for my workflow and how can I use these to make my traders more efficient, make my trading more robust?’ And ultimately that benefits the individual trader, it makes the trading desk more competitive, and all of these things really lead to better returns for the end investor

Dan Barnes Iseult, that’s been great. Thank you.

Iseult Conlin Thank you so much for having me.

Dan Barnes I’d like to thank Iseult for her insights today and of course you for watching. To catch up on our other shows go to TraderTV.NET or ETFTV.NET.