The consensus on primary market evolution

Published on 19 June 2024

While bond markets have a highly electronic market for secondary trading, the primary market for bond issuance is far more manual and inefficient. The benefits to secondary trading are clear to all, and the

Trader TV sat down with James Frew, co-head of fixed income trading at Pictet Asset Management, Jean Luc Lamarque, global co-head of primary at Crédit Agricole, and Carl James, global head of fixed income and municipals at S&P Global Market Intelligence to understand how far technology has evolved in bond market issuance, how widely spread its adoption is, and where the consensus sits in driving forward efficiencies to reduce risk and optimise profitability for investors and syndicate banks.

Interview Transcript

Dan Barnes Welcome to Trader TV your insights into institutional trading I’m Dan Barnes. Electronifying bond issuance is a priority for many heads of trading to discuss why and how that is happening are Carl James of S&P Global Market Intelligence, Jean-Luc Lamarque of Crédit Agricole and James Frew of Pictet Asset Management. Gentlemen, welcome to the show. To start with, how much risk is carried in primary markets compared to, for example, secondary markets?

Jean Luc Lamarque In primary markets, obviously orders are normally much bigger than in secondary. You often see orders of 100, 150, 200 plus. And you also have a number of investors putting orders so you can have books with 450 lines, for example. So by definition, you multiply the number of operational mistakes that can happen when you reconcile the book and so forth. And you have to execute that in a short period of time because you normally open the book around 8:00 in the morning and you have to be priced before the end of the day.

James Frew You might actually have 4 or 5 deals that price in one day. And if that if they’re all pricing by 4:00 p.m. in the afternoon, then for the buy side, it is about the orders that have limits on them, the orders that have hedges on them which unfortunately aren’t done by the lead banks at the time by the trading desk. And they have to be done at the time of pricing. Unfortunately, the alert of a deal pricing is done by the salesperson, and IB chat and the bell rings on Bloomberg. So nothing’s changed over the years on that and it’s therefore quite time-wasting, if you will, and depends on the salesperson being at his [or her] desk and the buy side trader being at their desk as well, to price and hedge correctly.

Dan Barnes Its all very manual, with quite a lot of risk involved in it. Carl what is your take?

Carl James But isn’t that the asymmetry between the secondary and the primary? I mean secondary has evolved over time. You know you can go back all the way to the bond dealers of 30 years ago, opening the huge ledgers. They knew where the bodies lay, etc., etc. and that’s slowly evolved over time. And in the secondary market. You’ve now got a number of different methodologies to be trading electronically. The way to electronify primary markets is in place. I just wonder what’s the catalyst to get people to electronify that process, because as James said, I mean, it’s a huge lift on the buy side desk. I think it’s a huge lift on the sell side desk as well.

Jean Luc Lamarque Even if you agree on a secondary market on a big ticket between the sell side, on the buy side, technically it will be executed on the platform, so it’s almost 100% electronified and almost hundred percent traded on all platforms, which makes it much safer for the entire industry. So we should probably try to get the same type of results progressively on the premium markets. That would definitely avoid that many mistakes.

Dan Barnes What could alleviate the risks that we’re seeing at the moment in primary?

Carl James It’s a bit chicken and egg. We know we’ve got the rails available for the banks to issue the bonds and send to the buy side. The buy side have got the means to consume those issues and whether they want to put orders into it, I think there’s a few little wrinkles there. I mean, James, you use a particular owns Charles River.

So it’s the idea of making sure that the order that is generated by the portfolio manager, which you receive electronically, it is how we don’t rekey that order. So with your particular OMS we’ve done some work. So you can electronically send that order from the OMS onto the investor access, which is the buy-side platform, which is where the sell side places the bond. That then travels along and you receive that order, and then all of them aggregate so you can see the full book live and it’s time stamped.

We roughly capture 40% of the book on European investment grade issues. I’d like to obviously for that to go higher because the more we can standardize it, the more that you can innovate and you can utilize data that you will capture and you will capture.

Jean Luc Lamarque Yeah, I think it’s important as well that everything is integrated properly. If someone on the buy side is mainly using Bloomberg as an example of MarketAxess, he [or she] needs to be able to replicate what he is doing in secondary when he operates on the primary side. And that’s going to be really the next step, which will make the difference because there is no difference in putting an order in primary or secondary if using the same system. So it makes it fluid, then people should theoretically get one or more of their operations directly involved in via this type of platform.

Dan Barnes So James its efficiency and potential performance improvement?

James Frew Yeah, I think taking the risks away from salespeople, for example, who aren’t really paid for these deals anyway. And the buy side, as I said, has lots of these deals being done in one day. It just means that people don’t have to spend an inordinate amount of time on primary, which brings little reward for both sides, right? We now have the {..] page from Bloomberg with all the new issue data.

I’m agnostic if that information is on S&P or Bloomberg, it doesn’t really matter as long as the feed comes into the Pictet Cloud, we then create a monitor from that cloud of deals that might be appropriate for the for the PMs. The PMs then highlight the deal they want, and create it as a template. It goes through all the compliance checks and protocols. Goes into their system, they raise an order into Charles River, Charles River, either into TSOX or Tradeweb whatever platform. Again, I don’t care what platform I use to put the order on just so that it is straight through.

Carl James We’ve done the integration work with Charles River. We’ve done integration work with Bloomberg. So we’re in the pilot stage with Bloomberg. So we know that the buy side can actually put their order TSOX and then roll that through, which is I think what you just described and that’s all electronified. So the more we get people utilizing that functionality, the more it will just become normalized. The more Jean-Luc and his broader colleagues in the industry will get more of those orders electronically, and then missed orders or any operational or business risk collapses.

Dan Barnes We’ve talked about the advantages for the issuer and for the end investor. But once you guys have that feedback loop–obviously you’re competing with other besides for the allocation, you’re competing with other dealers to make sure that you can represent the issuers–once you have that feedback loop, you can improve your performance. You can talk to each other about how each party can improve their performance too. So I do see that as being a net positive.

Jean Luc Lamarque Data is very important because you want to be able to build a theoretical book and put it in front of your issuer when you’re pitching. You say, okay, that’s a transaction we propose to you. So it would be a five years or we would be a seven years, would be a Euro trader, would be a dollar trader, because this is where we see the best possible execution for you at the moment. And by the way, the book type would be like that in terms of percentage of allocation or in terms of distribution with the asset managers, both from an investor point of view, but also from a geographies. You will sell probably 10% in Asia, you will say 90% in Europe as an example. And that is something which needs to drive to an extent the decision of investors or an issuer on the other side as well.

Carl James For me, it’s just electronifying the process means that you’ve got less time spent on dull admin. You’re reducing business risk and operational risk, time stamping everything. Orders don’t get lost. And then beyond that, you’re capturing all that information and data that you can use within your own data set that you guys have and layer that up and you actually make some quite smart decisions off the back of it.

Dan Barnes I’d like to thank James, Jean Luc and Carl for their insights today and of course to you for watching to catch up on our other shows, including Trader TV This Week at 6:45 a.m. UK time every Monday go to

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