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Data and transformations in the European fixed income markets

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2 March 2015
Ranjana Pieris
The 2015 AFME European Market Liquidity Conference saw two important Keynote speakers with Martin Wheatley and Andrew Hauser but for me the most interesting discussions were around the common leveraging of data to provide greater liquidity to the Fixed Income (FI) Markets and to analyse and optimise Transaction Cost Analysis (TCA). The ongoing discussion for the requirement for E-Trading platforms had moved on to the type and number of platforms that will be needed. In the latter point we are at a colonisation phase where many new platforms are created but not all are likely to succeed. Data is playing a more transformative role in the thinking of the optimisers in Capital Markets with the sell side and financial service providers expressing the use of it to optimise FI trading and allowing greater liquidity and automation. Interestingly the discussion on TCA also revolved around the greater use of data to automate trades but the general consensus was that although 95% of trades may be automated via TCA algorithms it is the 5% that fail that can be the most costly. It is interesting to note that the ex-ante use of data for TCA was discussed by Celent in a 2010 report and the adoption of it by the sell side appears only to have started in the European FI markets. However given the lack of liquidity mentioned the use of full automation is some time away and maybe applicable only to the most liquid FI securities. Celent has already discussed the emergence of electronic platforms in previous reports such as 2014 European Fixed Income Market Sizing: Electronic Strikes Back being the latest and the general consensus for electronic trading of FI via central Limit Order Books (CLOB). For a view on CLOB see this report. The question raised now was how many FI platforms would be needed with the sell side agreeing a greater number of platforms while the buy side seeing the requirement for less platforms with greater liquidity. Maybe the multiple FI liquidity points can only be overcome by greater cooperation from both the buy and the sell side which is already on the table with Project Neptune.

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