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Accelerating the Growth of Electronic Trading Systems to Gain a Greater Share of Fixed Income Trading Activity. Andy Aitkenhead. Business & technology. Global perspective Business and technology issue

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Accelerating the Growth of Electronic Trading Systems to Gain a Greater Share of Fixed Income Trading Activity

Andy Aitkenhead


Business technology
Business & technology Gain a Greater Share of Fixed Income Trading Activity

  • Global perspective

  • Business and technology issue

    • Technology has and will continue to drive the future of the fixed income market in order to effectively and efficiently handle the increasing volume of trade activity


Greater share more liquidity
Greater Share … More Liquidity? Gain a Greater Share of Fixed Income Trading Activity

  • Three main themes:

    • Connectivity

    • Content

    • Business Models


How are we doing
How are we doing? Gain a Greater Share of Fixed Income Trading Activity

“Collectively the world’s leading commercial and investment banks are making rather a mess of transferring parts of their business to the internet. Many are committing fundamental mistakes they would never allow to get through in their traditional operations. Leadership of internet initiatives is often confused, as are their objectives. A few banks may have built good sites for specific businesses but none has come close to putting together a complete set of internet offerings.”

Euromoney internet awards, November 2000.


Strategic or tactical approach
Strategic or Tactical Approach? Gain a Greater Share of Fixed Income Trading Activity

  • Most banks are struggling to develop a coherent, consistent e-commerce strategy.

  • Many e-commerce initiatives are taking financial markets business backwards.


Themes
Themes Gain a Greater Share of Fixed Income Trading Activity

  • Connectivity

    • External - proliferation of systems

    • Internal – moving from new to legacy technology

    • Numerous protocols, different protocols dominant in different markets

    • Data model issue

  • Content

    • Difficulty of combining content & applications

    • Relevance

  • Business Models

    • Will continue to develop

      Technology can be frustrating


Connectivity internal external
Connectivity – Internal & External Gain a Greater Share of Fixed Income Trading Activity

  • Internal

    • Most e-commerce projects in fixed income have been front end web based trade capture

    • Firms have substantial legacy infrastructure for trade processing

  • External

    • Proliferation of ECNs, ATSs, portals, etc.

    • In the main each initiative has determined the connectivity


Proliferation of electronic trading systems
Proliferation of Electronic Trading Systems Gain a Greater Share of Fixed Income Trading Activity


Proliferation of electronic trading systems1
Proliferation of Electronic Trading Systems Gain a Greater Share of Fixed Income Trading Activity


Connectivity protocols
Connectivity - Protocols Gain a Greater Share of Fixed Income Trading Activity

  • Proliferation of protocols developed for different markets

    • FIX – equities, now FIXML, FIX for Fixed Income

    • FpML – interest rate derivatives, some extension, FX & MM (also TOF for FX)

    • MDML, ResearchML – market data, research

    • Proprietary XML – NTM, FINXML

  • If we’re combining multiple types of content and applications we need to deal with numerous protocols


Content
Content Gain a Greater Share of Fixed Income Trading Activity

  • 2-3 years ago …

    • Should we go online?

  • 1-2 years ago

    • Execution

  • 0-1 year ago

    • Execution & content


Content1
Content Gain a Greater Share of Fixed Income Trading Activity

  • How relevant is the available content?

    • Role based, combined with applications

    • Importance increases with more credit intensive business

  • Two levels

    • Desktop productivity

    • Client added value

  • Cover any area

    • Origination, distribution, trading

    • Issuer, sell-side, buy-side


Role based content
Role Based Content Gain a Greater Share of Fixed Income Trading Activity

  • Co-mingling of Content & Applications

  • Need framework for providing this

  • Desktop real-estate is still an issue

  • Content & transaction capability combined

  • Webstation

    • Web-based content

    • Window on content and applications

    • E.g. market data, news, research, analytics, trade capture, chat, video, position keeping


Webstation for
Webstation Gain a Greater Share of Fixed Income Trading Activity for …

  • Fixed Income Fund Manager

  • Corporate Bond Trader, Salesman

  • Emerging Markets Syndicate

  • Asset Backed Trader

  • Analysts

  • Etc, etc, etc


Business models
Business Models Gain a Greater Share of Fixed Income Trading Activity

  • e-trading has taken markets backwards!

  • Most initiatives are single asset class

  • In the last decade there has been an increase in integration of business lines with more structured business taking place.

  • So far not many firms have co-ordinated initiatives across the separate trading businesses.


Combining business streams on the web
Combining Business Streams on the Web Gain a Greater Share of Fixed Income Trading Activity

  • Need for:

    • Strategic view

    • Interoperable technology

    • Synchronous pricing engine

  • Ability to provide interaction for the client/user across the business


Several of these
Several of These? Gain a Greater Share of Fixed Income Trading Activity

Client

Trading Portal

Market Data

Analytics

Trading System

Research

Firewall

Trading Portal

Market Data

Analytics

Trading System

Research

Liquidity

Provider

Server Integration

Market Data Server

Analytics Servers

Transaction

Server

Research Servers

Firewall


Or this
Or This? Gain a Greater Share of Fixed Income Trading Activity

Trading Portal

Client

Market Data

Analytics

Trading System

Research

Firewall

Equity Portal

Market Data

Analytics

Trading System

Research

Fixed Income Portal

Market Data

Analytics

Trading System

Research

Treasury Portal

Market Data

Analytics

Trading System

Research

Synchronous Pricing Engine

Liquidity

Provider

Server Integration

Market Data Server

Analytics Servers

Transaction

Server

Research

Servers

Firewall

Market Data Providers

Consensus Estimates

Share Price Data

News

Brokers Research


Changing business models
Changing Business Models… Gain a Greater Share of Fixed Income Trading Activity

  • Internet changing the market like never before?

  • What about the telephone?

  • Markets will change …

    • shouldn’t just be automating the existing model


Integrating Retail Gain a Greater Share of Fixed Income Trading Activity

Business into Wholesale

Investor

Bank

Satellite

Satellite

Wholesale Trading Hub

Wholesale Trading Hub

Fund Manager

Retail Client

Satellite

Wholesale Trading Hub

Satellite

Fund Manager

Bank

Satellite

Satellite

Retail Client

Retail Client

Investor


Is it still a relationship business
Is it Still a Relationship Business? Gain a Greater Share of Fixed Income Trading Activity

  • How might it change?

  • Democratisation of the market?

  • Characteristics of the organisation

  • Maintaining the Relationship


Liquidity constraints
Liquidity Constraints Gain a Greater Share of Fixed Income Trading Activity

  • “Investors slam dealers for not providing liquidity and for high costs”– Forrester Report

  • Electronic systems increasingly targeting credit markets

  • Can systems help to enhance liquidity?


Connectivity content new business models
Connectivity, Content & New Business Models! Gain a Greater Share of Fixed Income Trading Activity

  • Combined they provide greater traction

  • New liquidity models will emerge

  • Potential for convergence of wholesale & retail business in some markets

  • Back to more structured products electronically?

  • Platforms for trading multiple products will take time


Combining transaction capability with content
Combining Transaction Capability with Content Gain a Greater Share of Fixed Income Trading Activity

  • Increased value-add

  • Increased flows, increased market share

  • Increased liquidity

  • Potential to tighten spreads/increase revenue


Thank You Gain a Greater Share of Fixed Income Trading Activity

[email protected]


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