JP Morgan: Trader and dealer relationships are evolving to meet execution needs

Published on 3 July 2024

Trader and dealer relationships are evolving to meet buy-side execution needs, particularly at a time when there is growing market uncertainty. Scott Wacker, head of e-commerce sales and marketing at JP Morgan, spoke to Trader TV about the increasing adoption of electronification in FICC trading and how margin pressures are shaping buy-side demands and the way they interact with their dealers.

Wacker looks at the critical importance of “trust” and price transparency in these partnerships during periods of both high and low market volatility.

He also unpacks the growing use of new technologies like artificial intelligence and where they are playing a role on the trading desk.

Interview Transcript

Jo Gallagher Welcome to Trader TV, your insight into institutional trading. I’m Jo Gallagher. Conversations between buy side on their dealers are changing in order to support the growing volumes and the needs of traders today. Here discuss these issues is Scott Walker at JP Morgan. Scott, welcome to the show.

Scott Wacker Thank you very much.

Jo Gallagher So tell me, what changes are you seeing in the client side when it comes to FICC trading?

Scott Wacker Markets continue to evolve, but most recently, one of the things that we’ve been talking to clients about in the FICC space is really direct connectivity. And direct connectivity has probably doubled in the last year. We continue to see this grow, it’s a very strong trend. I think our clients are starting to see the benefits of direct connections to their largest counterparties, mainly because it lowers execution costs, it keeps information sort of within the realm of their control, it allows them to collect data, which they can then use for data analytics, analyzing historical trade data, current market parameters to really optimize trade execution.

We’re seeing a few of the platforms developing tools which allow customers to trade their, let’s say, low touch business in as efficient a way as possible, using, you know, pre-determined trading tools. But if you really think about what’s happened in the electronic trading market, you know, more electronification means more transactions generally at lower notional gives you a lot more tick and trade data. That tick and trade data that’s collected and pulled together and analyzed using new technology such as artificial intelligence, cloud computing. You can really start to parameterize how you trade. These are some big themes that we’re seeing right now.

Jo Gallagher How are you seeing that relationship between the client in the dealer changing?

Scott Wacker I think a lot of clients are starting to see that, you know, if they’re partnering with an entity that can both deliver very efficient and tight pricing electronically, but also leverage their franchise and the market liquidity, that is a pretty powerful outcome. So I think the partnerships are getting stronger.

Jo Gallagher And so how does trust fit into that dialog?

Scott Wacker I think trust is critical, especially in a dealer to client relationship. I think, you know, certainly in the electronic world, transparency is one of the benefits. You have a much better idea where the market is trading. But we are also very clear in terms of how we are formulating liquidity and how we are pricing a client given the protocol-channel way that they trade. And if we can together figure out a better way of doing business together, we can lower the costs and get a better outcome for both.

The other thing, which I think is super important in terms of building trust, is knowing that, you know, we will be there for our customers through thick and thin. You know, we sort of coin it is all-weather pricing. So when markets are very quiet, volatility is low, spreads are tight, you know the electronic machines will hum. But when times get tough you know you need someone to step up and put a price on things or when all customers are going the same way, that trust and partnership is super critical.

Jo Gallagher So how do you also see that potentially shaping the buy side?

Scott Wacker You know, as technology advances the potential of artificial intelligence, quantum computing, cloud computing where you can hold a lot more data and as data gets better, right? So every time you do an electronic trade, it’s printed very easy to hold on to that and go back and reference it with all that information. I think we have the ability collectively to just continue to improve the ecosystem.

The other thing is, as we learn through different asset classes, we basically fold back in on other asset classes that we perhaps thought we had finished. But if you take credit markets, for instance, and the importance of portfolio trading and access the ETF market, you know, the learning process there, combined with the leveraging of the franchise to internalize and lower costs and work with platforms and customers and look at direct connectivity, is going to help us go back to our rates agenda or even our agenda and figure out how to improve. So it’s quite ubiquitous. It keeps going round and round.

Jo Gallagher I’d like to thank Scott for his insight and of course you for watching to catch your other shows, including Trader TV This week on Mondays at 6:45 a.m. UK time go to Tradertv.net.

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(execution needs, dealer, buyside, dealer relationships, trader)