The demand for trader workflow efficiencies, unified visibility, and a shift in dealer buy-in have been major drivers in the growing adoption of fixed income (FI) execution management systems (EMSs), says Virtu Financial’s Michael Loggia.
The global head of client trading technology speaks to Trader TV about the reasons behind the change in sentiment around integrating a fixed income EMS on the trading desk; the value-add and FI nuances to consider; the growing importance of bilateral trading, and the biggest innovations emerging across voice and electronic trading today.
Interview
Josephine Gallagher – So, we’ve seen this shift in sentiment in having a fixed income EMS over the last few years. What, in your opinion, is the reason behind that? What are the drivers?
Michael Loggia – I really think it stems from having so many different screens and systems that fixed-income traders need to have to employ their workflows on a day-to-day basis. Anywhere from like 6-14 screens. An EMS really can act as a centralized dashboard for what they’re looking at. We’re able to integrate all the data points they need to inform them on a pre-trade basis of where they should be trading. We have all the access to liquidity of different protocols and the venues that they need to have access to. And then, most of all, there’s a data overlay component to that. So when we talk about having it all in one place, we’re able to actually take in that data into a platform, warehouse it in a normalized way, where it can be regurgitated and brought up to help inform future trades.
Josephine Gallagher – Also know that equities is incredibly different to the fixed income space in itself, like we have within fixed income sub asset classes that are less electronic, less liquid. So what is the real value-add in having a fixed income EMS, and how do you apply that then across the different sub-asset classes?
Michael Loggia – First and foremost, you have an electronic audit trail, naturally in an EMS, even if it’s not an electronic workflow. If it’s a voice trade, there’s a way to record it. So now you’re talking about being able to pull back up trades, tag them, historically, understand why you did something, if you need to explain something to a PM or an auditor. So I think compliance is a big benefit that spans across the asset classes, all the sub-asset classes. The second is a unified Best Ex policy that’s pretty difficult to employ across asset classes. When you’re trading in different systems, you’re doing things at different times, different timestamps, maybe the data looks a little bit different When you’re in an EMS, and hopefully that EMS has some kind of integrated analytics platform for reviewing your trades it makes it a lot easier, because there’s a natural state that you get to where all of that information is natively sucked down into the analytics framework, and now you have a methodology that’s uniform across all your asset classes.
Josephine Gallagher – Where do you see the biggest innovations coming from across fixed income, whether it be electronic or voice trading?
Michael Loggia – So voice is an interesting one right off the bat, because I think that while we’re always focused on electronic trading, from an EMS perspective, and that’s where a lot of the innovation is happening, there’s certainly a large part of the market still happening in voice, and we can’t forget about that. We’ve developed functionality for being able to actually input manual competing quotes that a lot of people are tracking on spreadsheets. But the nice part about that, from a data perspective, is it will look exactly like the electronic trades when you’re looking at that in the past, because it’ll be like you received those competing quotes electronically. I think another area of disruption or innovation has really been around bilateral trading. There’s been a shift in sentiment from, I think, the dealer community, whereas a few years ago, most dealers would have been unwilling to connect to an EMS directly. There’s a willingness now for at least the right clients. But I think a big part of the change is from the dealer community understanding that they now need to figure out how to price directly and off platform, and that’s big change for them, because historically, they weren’t built for that. They were generally built to interact with their client base through these large platforms and in very confined ways of being accessed. And now I think it’s allowed them to grow with partnerships more directly. I think the dealers have had to increase their resource in their tech stack to be able to support that effort. But I also think it changes the way they think about pricing their risk and their inventory, because it changes their implicit and explicit cost of trading. Not only have the dealer community changed their sentiment, but I think that the platforms have really built out their APIs to make sure that they stay the pipes and plumbing to the entire system, which is nice because it offers us an opportunity to provide the trader a dashboard that they don’t actually have to leave in order to conduct that trade. They can bring up an order ticket that looks like one of these platforms, and it’s accessing the same trading protocols, but they actually don’t have to leave our system at all.
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