Why has portfolio trading boomed this year?

Published on 18 September 2020

Portfolio trading took off in popularity at the height of this year’s volatile markets. Chioma Okoye, director and European credit product manager at Tradeweb, says that trading protocol has become increasingly used by asset managers from the largest to the smallest firms, with greater numbers of line items being used, and traders moving from manual spreadsheet models to electronic trading for improved efficiency.

Since trading US$49 billion in 2019, Tradeweb has seen volumes explode with US$79 billion of portfolio trades executed in the first eight months of the year. Chioma explains how and why appetite and capability has increased.

Dan Barnes Welcome to Trader TV, I’m Dan Barnes. Portfolio trading has been a valuable protocol over buy-side traders this year, particularly when markets were selling off and they needed certainty of execution. Joining me today is Chioma Okoye, director and product manager for European Credits at Tradeweb, and we’re going to discuss the value that portfolio trading can add to buy-side trading desks. Chioma, welcome to TraderTV.

Chioma Okoye Thank you for having me, Dan. Good to be here.

Dan Barnes So tell us, we saw portfolio trading take off at the peak of volatility this year. Why did it and from your perspective, by how much?

Chioma Okoye It really was down to the fact that other electronic protocols and actually voice protocols as well were not, on their own, meeting customers’ needs sufficiently in that moment. There really was an increased need for certainty of execution. And as you can imagine, because the markets were so choppy at that time, the opportunity cost of not being able to get your trade done precisely when you needed to, could be extremely high. So there was a need for a protocol that addressed that head on, and portfolio trading is just that.

Dan Barnes How would you characterize the change in the user-base that you have seen for this protocol since the start of the year?

Chioma Okoye I would say we initially were seeing mostly the largest asset managers, globally, adopting the protocol first. But as time progressed, we saw smaller asset managers try it out and find that it met their needs as well. And then on top of that, hedge funds and pension funds, more client types just started to get involved, so it got quite varied in terms of customer type over time.

Dan Barnes Do you find clients have experience of portfolio trading on a more manual basis and they’re moving that to electronic or are they starting electronic portfolio trading afresh?

Chioma Okoye So Dan, we’ve actually seen a mix of both I would say, so there are some customers that had been trading portfolios via spreadsheet exchange, and they were some of the customers that initially partnered with us to build an electronic solution for that workflow. But as we’ve now launched it, and it’s something that’s getting more and more traction, we’re finding that customers are adopting it afresh, based on what we are able to offer them at this time. So it’s a mix of the two.

Dan Barnes How do you say it fits into the wider trader workflow in the way that this is used?

Chioma Okoye With credit trading it can be really challenging and there is no one-size-fits-all. So this is just yet another tool that we are arming the execution trader with. And the trick is having every tool to hand to be deployed as the situation requires via a single unified interface, which is Tradeweb. and then the skill, the experience, the judgment of the execution trader can really be brought to bear and make all the difference when they decide what protocols to use for what situation.

Dan Barnes Do you think that traders find it challenging as new protocols are added to the many choices they have for execution, or does it effectively simplify things because now they have a better way to execute trades?

Chioma Okoye So the goal is always to streamline, to simplify, to make more efficient. The trade team has a reputation for collaborating really well with our buy-side partners. And as a result, we don’t overcomplicate things, we don’t develop in a vacuum. It’s always sort of hand-in-hand with the actual end user. And as a result, we do tend to find that they say, ‘yes, this is adding value, making my life easier’. That said there’s a plethora of tools out there and I’m sure it can be challenging. That’s why we try to synthesize everything in essentially a one stop shop for our customers to trade by our multi-asset venue like Tradeweb is.

Dan Barnes And so have any elements of the service changed as a result of engagements and feedback since the start of the year?

Chioma Okoye I would highlight the number of line items. So right now we can accommodate up to 800 line items in a single portfolio on US credit, and that’s something that we are continuing to evolve globally. So yes, we have been updating the offering over time.

Dan Barnes What would you recommend for trading desks who are considering portfolio trading right now?

Chioma Okoye So my suggestion would be just to try it, familiarize yourself with it whilst markets are relatively calm, because it is a challenge to try to learn something new right in the midst of very busy markets or a very volatile market conditions.

Dan Barnes And presumably with potential volatility on the political side, on the health side, markets coming up later this year, now would be a good time to do that?

Chioma Okoye It would be, and we have actually found over the last two months, over the summer that we’ve continued to see new customers come on board, because they have actually used that time to familiarize themselves with it and just have it as and when they might need it. Portfolio trading has proved itself to be a valuable tool in any market conditions. So even though, yes, we did see an acceleration in March, overall the protocol was growing before and has continued to, even when things have calmed down. So in 2019 overall, we traded 43 billion worth of portfolio trades, and in the first 8 months of this year, from January to August, we’ve done 79 billion. And that definitely included acceleration in March into April, and it’s been ongoing since then.

Dan Barnes That’s excellent. Chioma, thank you very much.

Chioma Okoye Thank you so much, Dan.

Dan Barnes I’d like to thank Chioma for her expertize and of course you for watching. To catch up on our other shows or to subscribe to our newsletter, go to TraderTV.NET or ETFTV.NET.