Positive approaches to increasing primary market efficiency

Published on 28 October 2019

Asset managers need to overcome operational inefficiency in primary markets today. We spoke with Doriane Geyler-Rojas and Abdoulaye Ba of Natixis Asset Management Finance to learn how they are trying to overcome these hurdles, through a better use of data, access to platforms and potentially through regulatory change.

Dan Barnes Welcome to Trader TV – your insights into the trading climate for professional investors. I’m Dan Barnes. In this show, we’re coming to you from the Fixed Income Leaders Summit in Barcelona. I’m joined by Doriane Geyler-Rojas, and Abdoulaye Ba of NAMF (Natixis Asset Management Finance), to talk at FILS today. Doriane, Abdoulaye, welcome to Trader TV.

Doriane Geyler-Rojas Hello. Thanks for the invitation.

Dan Barnes So how important is primary market issuance today?

Doriane Geyler-Rojas First, the QE has led us to a dry-up of the secondary market and to a liquidity excess in the economy. So, we are now suffering from a big issue of liquidity in the secondary market. Fx it became difficult to trade even in medium size, and the prices are affected as well by this scarcity. The primary market offers the possibility to investors, to be more allocated and even sometimes with niche premium on bonds that are naturally more liquid, because they are on the run.

Dan Barnes What are the sort of trading challenges in accessing primary markets?

Doriane Geyler-Rojas There’s so many, but first I want to talk about the lack of centralization and standardization, and our dealing desk needs to be very reactive and watch carefully all the information we can receive, so not to miss any issuance. As an example, books timing are highly variable and allocations rule are hard to forecast, whereas our clients are relying on us to give them full access of the primary market. And so, there is a problem on the orders on the primary market. We’ve seen that books are always oversubscribed, and that the guidance is always tightening versus first high pitches, and I’m not sure that’s a good direction for our investors.

Dan Barnes So what are the possible solutions out there to those challenges?

Doriane Geyler-Rojas To me, the Big Bang should come from the tech side. It has to. Today’s need is around centralization and standardization, who else than technology to bring it? But I have another idea, too. I’m not sure I will convince everyone with that, but maybe we need some more regulation in this market to push it forward.

Dan Barnes Do you think, is there perhaps a need for the banks to be brought in as well as the people who are managing the allocation process?

Doriane Geyler-Rojas Yeah, of course, but I think that the main problem is that even the banks don’t agree with each other on the subject.

Dan Barnes Then what are the data challenges around this?

Abdoulaye Ba Our main challenge at NAMF is to bring to our client solutions to this challenge.

Dan Barnes In terms of the solutions, are these things you’re building yourself?

Abdoulaye Ba Yes, currently we are performing a lot of work out of global at NAMF, and primary market is one of our focus. Our objective is to build a data analytics platform, that can provide and be a tool for us, for our trading activity, but also that can give an added value to our client on what they need as information from the market. Just one example about the premium market; often our clients ask us to have the primary market allocation rate, because they need these indicators to compare to their own allocation rate. And they also need this information for their forecasts, and for the strategy they will have for the next year. So, this information is sometimes not published and not saved. So, we have this challenge to reach out for this information

Dan Barnes That’s really interesting, that must be hard work.

Abdoulaye Ba It’s hard work, but it’s something which is absolutely necessary today.

Dan Barnes What’s driving change today?

Doriane Geyler-Rojas I think that the right question is, who is driving change today? To me, the change is driven nowadays by the tech providers. They are often bought by bigger providers of that type of services or sometimes even by a bank consortium. Among those initiatives we’ve seen, for example, Aperio, on the credit market. They made a very good tool to help us concentrate the book of primary market, but maybe the problem today is that not all the deals are on Aperio. And as I told you before, I think that the bigger point is to centralize information, and I mean, all the information. We even see initiatives on the French money market. I’m not sure that all of your audience is aware of that, but I want to talk about NEU CP, and its competitor, Onbrane, who are both building complete platforms around primary issuance on the money market and even for one of them, with the settlement included in it, to make sure that all the deals match, even if they are valued. At the end of the day, I think that the threat is about fragmentation, because if too many initiatives come out at the same time, we are missing our points of centralization. And that’s when I think the regulator has to come, to push us to one direction and one standard of market.

Dan Barnes That’s excellent. Thank you both very much.