Primary markets inefficiencies in fixed income create major operational risks and costs to buy-side and syndicate desks. Yet, many market participants are generating momentum to resolve these legacy-laden problems.
Trader TV speaks to James Frew, co-head of fixed income trading, at Pictet Asset Management, Mike Poole, head of trading, at Jupiter Asset Management, and Olivier Dermeux, executive director of fixed income strategy at S&P Global Market Intelligence about how this space can progress and how standardisation and industry collaboration need to become core components of that evolution.
Dermeux discusses what industry collaboration could look like and how innovations can play a role in implementing a new standard process for primary markets.
Frew and Poole unpack the next steps in driving this initiative forward and the importance of developing wider spread adoption of new processes, particularly across syndicate banks.
Interview Transcript
Jo Gallagher Welcome to Trader TV, your insight into institutional trading, I’m Jo Gallagher. Primary market inefficiencies in fixed income can create major operational risks for the buy-side. Here to discuss how the space can progress are James Frew at Pictet Asset Management, Mike Poole at Jupiter Asset Management and Olivier Dermeux at S&P Global. Guys, welcome to the show.
All speakers Thank you.
Jo Gallagher How have the buy-side demands in primary markets evolved over the last year?
Mike Poole Development in this space has been slow owing to the buy-side really wanting one solution. And really I think what’s key is that we have one process and potentially multiple solutions. As we saw with the secondary market, development comes with implementation and adoption. So what we require is more industry collaboration to create a standardized process around shell security, dissemination of information and transmission of orders and allocations. With that, it will free up time for greater data analysis and hopefully better client outcomes.
Jo Gallagher Olivier, what does integration mean for the buy side in primary markets?
Olivier Dermeux As Mike mentioned, standardization, efficiency, and partnership. So the partnership piece is key, obviously, because the buy side do their business in such particular ways, right? So not one size fits all. We’ve done partnerships with Charles River, with Bloomberg TSOX, which has resonated very well in the market, but we’re keen to work with as many providers as possible in order to give the optionality for the buy side to leverage investor access.
Now in terms of what an integration looks like, it’s two APIs. A data API allows that creation of shell securities to be a lot more efficient, allows that data to be fed to the investment process a lot quicker. The second is a fixed API that allows for the execution from the chosen venue straight into the syndicate book, which is a unique feature of InvestorAccess.
Jo Gallagher James as mentioned, there’s a lot of data involved in this process. How would you like to see that develop?
James Frew It would be nice to have that information, that data all standardized, you know. It comes from many sources, you know, from Bloomberg, from syndicate desk emails, S&P, Tradeweb, but it would be nice to have a standardized format where that information can be fed into any given asset manager and they can create those deals on the back of that information and pull out all the fields that they need to go through all the compliance checks with the ESG checks. And the deal creation should be a matter of minutes, not hours, right.
Post new issue-wise, you can see how deals are performed on the break in the gray markets and the ensuing week of that deal, you can see which banks have led deals performed better, how your allocations would be on that name or that sector or that part of the curve. So yeah, again, there’s a lot of information that each asset manager will fine tune accordingly and use to their advantage on having better conversations about allocations, for example. And its probably more important for the sort of middle to low-tier asset managers rather than the larger ones.
Jo Gallagher What are the next steps then in improving these workflows? James starting with you.
James Frew Collaboration obviously is key. I think the sell-side salesperson and the buy-side trader are fully invested to, you know, to find [have] this process being automated. The desire is there, the tools are there. It’s just trying to bring the syndicate desk to the same table and bring it over the line.
Mike Poole This isn’t just us on the buy side looking for more clarity around the allocation process. We appreciate there’s a number of factors from investors to issuers themselves. What we’re looking for is a standardized process that allows for reduction of risk and an increase in scalability for our investment platform, but also what the issuers and the syndicate desks are trying to achieve. At the moment there’s a lot of manual processes that don’t only add risk but take up a lot of time and can actually suck liquidity out of the secondary market as a consequence of taking up people’s time. The streamlining of that standardization of information flow and then order flow and then allocations not only frees up people’s time but reduces risk, increases scalability and enhances client outcomes.
Olivier Dermeux Effectively, it’s bringing the market together the buy side, the sell-side, the issuers even in the second term. We’re seeing strong adoption from a bank perspective, we continue to see growth of two banks joining the initiative recently. So long may that continue and hopefully we can all come together and have one coherent solution.
Jo Gallagher Excellent. Gentlemen, thank you very much for joining us.
All speakers Thank you. Thank you.
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