Trading behaviour is reflecting market and macro dynamics

Published on 18 July 2023

As trading activity in fixed income markets has shifted in the sizes and numbers of tickets traded, notional volumes and counterparty activity, so traders have needed to engage with one another differently. Matching the right protocols to the optimal way of transferring risk requires access to supportive and effective platforms.

We asked Mike Sobel and Jason Quinn of Trumid how they had seen market activity changing , and what impact this had on their users’ trading styles.

Transcript of interview:

Dan Barnes: Welcome to Trader TV at FILS – your insight into institutional trading. I’m Dan Barnes.

Market wide liquidity conditions have been challenging this year. And today we’re going to talk about how electrification has been helping traders through that situation. Joining me are Mike Sobel and Jason Quinn of Trumid.

Guys, welcome to the show.

Mike Sobel: Thanks Dan.

Jason Quinn: Thank you.

Dan Barnes: Mike, starting with you, what’s been the liquidity picture from your perspective?

Mike Sobel: Obviously, macro conditions have been challenging, certainly have been unforeseen events leading to volatility market wide and specifically in fixed income. From our perspective, liquidity has actually been pretty good this year. We see a relatively healthy new issue market, which is very important for both high yield and investment grade. We’re seeing overall market volumes up in the mid-single digits, which is pretty consistent with historical trends and importantly with some real yield on the asset class for the first time in a long time.

US credit is an attractive asset class and we’re seeing global interest from a broadening range of participants, which I think over the intermediate term is a really healthy backdrop for US credit and liquidity in the asset class. Specifically on Trumid, we’re seeing all of that kind of reflected in activity on the platform, but also the breadth of participation. We’re seeing growth in the client base, increasing diversification in the client base and significantly expanding usage across our set of protocols.

Over the last year or the prior year it’s been a kind of long and sustained trend of material growth. As new players become involved in credit, electronic trading continues to be more and more part of the solution. As the buy-side increase assets under management and look to do so efficiently using tools that are available on Trumid and elsewhere is a very important part of scaling their business and managing challenging market conditions and inflows to their funds and the asset class.

Dan Barnes: How are you seeing trading behavior change to match market conditions?

Mike Sobel: Electronification again is a big part of that and the drive for electronification, I think there’s several kind of material factors that are sustainable ones, and one is the long standing desire for operational efficiencies. So that comes through speed of decision making, scalable decision making and of course cost savings, all of which are achieved on platforms in general.

Secondly is the desire for data driven decision making. So faster, scalable decisions that goes hand in hand, I think, with the increased presence of alternative players in the space. So those are kind of systematic liquidity takers and providers who have a very symbiotic relationship with technology and data. And lastly, particularly during challenging conditions, there’s a desire to go where the liquidity is. And I think increasingly liquidity is better on electronic trading platforms. So there’s a real gravitational pull to our platform and other electronic trading venues, because that’s where trades are getting done efficiently and effectively.

Dan Barnes: Very good. And Jason, how do you see this process playing out for people actually on the desk?

Jason Quinn: Over the last five years or so, we’ve seen the entrance of new workflows, new protocols, ways to get trades done electronically, of course. And so what’s really interesting is that evolution has taken place. And Mike mentioned data driven decision making. There’s also such a thing as automation using data. And what I mean by that is now that you’ve established these new trading workflows which are effective, given certain circumstances, you can start to do really interesting things around tying them together and you can tie those together, you know, just manually where people can decide between them, or you can start to do things where as the system, particularly on Trumid, becomes more enriched by all the activity that’s happening there, we could start to guide clients to places where they might find liquidity faster. At the end of the day, we’re just really trying to save people time and money.

Dan Barnes: Very good. And so we look at electronification. Do you see this as being a growth of overall activity within the market or is it a shift from voice to electronification?

Mike Sobel: I think it’s both. There’s no question that we are seeing trades that had previously been done over the phone that are now moving to electronic venues because it’s faster, it’s cheaper, execution is better. I think that over a longer horizon with the increased ability to use data for decision making, increased transparency and speed and cost savings and the broadening and diversification of the participant base, we will see an increase in overall liquidity and increase in overall volume. So I think that is a longer term trend that is an important part of the equation.

Dan Barnes: That’s really good. Thank you. So I think we’ve covered what’s driving electrification. What is Trumid doing in response to this drive? Jason?

Jason Quinn: We’ve worked really hard to establish an ecosystem of workflows on the platform. Within each of those, we really focus quite a bit on simplifying the workflow, making sure that access to those protocols is efficient and easy. And a lot of what I mean by that is can our clients get to those workflows easily from their own internal systems, whether that’s on the buy-side or the sell-side? We’ve just completed our launch of some of our list trading protocols. So we’re very focused on using the data that’s coming into the system to tie those workflows together, help our clients decide which workflow is more appropriate given a certain circumstance. And hopefully, like I said before, help them save time and money.

Dan Barnes: It’s great to see such a positive growth story. Guys, thank you so much.

Jason Quinn: Thank you.

Mike Sobel: Thank you.