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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
  • 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?
  • Three main themes:
    • Connectivity
    • Content
    • Business Models
how are we doing
How are we doing?

“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?
  • Most banks are struggling to develop a coherent, consistent e-commerce strategy.
  • Many e-commerce initiatives are taking financial markets business backwards.
themes
Themes
  • 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
  • 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
connectivity protocols
Connectivity - Protocols
  • 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
  • 2-3 years ago …
    • Should we go online?
  • 1-2 years ago
    • Execution
  • 0-1 year ago
    • Execution & content
content1
Content
  • 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
  • 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 for …
  • Fixed Income Fund Manager
  • Corporate Bond Trader, Salesman
  • Emerging Markets Syndicate
  • Asset Backed Trader
  • Analysts
  • Etc, etc, etc
business models
Business Models
  • 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
  • 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?

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?

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…
  • Internet changing the market like never before?
  • What about the telephone?
  • Markets will change …
    • shouldn’t just be automating the existing model
slide24
Integrating Retail

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?
  • How might it change?
  • Democratisation of the market?
  • Characteristics of the organisation
  • Maintaining the Relationship
liquidity constraints
Liquidity Constraints
  • “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!
  • 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
  • Increased value-add
  • Increased flows, increased market share
  • Increased liquidity
  • Potential to tighten spreads/increase revenue
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