2019 Market Trends in Trading Technology

Amid a market climate of persistent volatility, today’s investors are actively seeking ways to competitively source liquidity—and they’re utilizing technology to achieve just that. During last week’s Fixed Income Leaders Summit (FILS) held in Philadelphia, portfolio managers and technology partners alike maintained that innovative solutions—such as automation, portfolio trading and cutting-edge data management tools—will be integral for investors in 2019.

Financial institutions are consistently investing in tools that enable teams to efficiently move out of the analog age, with banks annually investing more than $90,000 per full-time employee on internal technology systems, resulting in productivity gains of $37 per dollar spent in fixed income. In the current market environment, investors are looking for ways to create new structures and improve their workflows any way possible, Paul Kaplin, Bloomberg’s Head of Global Credit, TRS and Price Transparency, said during FILS. Data aggregation is one of the “most vital” aspects of streamlining workflows, according to PIMCO EVP Sonali Pier. “As shops trade directly off the desk, it’s increasingly important how data gets shared, not just across the floor, but globally,” she commented during a FILS panel. Kaplin noted that this is one gleaming example of the way in which solutions for communication and data management go hand in hand. Teams are currently dealing with different data sets, and various panelists agreed that there’s a discrepancy in information from buyside to execution. This overlap of challenges calls for implementing tools that utilize a variety of innovative solutions. One FILS speaker used the example of a trader discussing an order with her portfolio manager to note that the breakdown of data and communication could be partly mitigated by utilizing automation. Imagine that a trader must explain to her portfolio manager why she was unable to execute an order in an environment where they both are making assessments with different information. Algorithmic pricing models provide a method of ensuring that both actors are making informed choices with the exact same information available to each of them. While introducing automation tools could be a difficult task, MarketAxess President and COO Chris Concannon noted during FILS that showing teams the tangible outcome of automated tools will encourage wider-spread implementation. In fact, he estimated that in 4 years, 90% of trades under 5m will happen in an entirely automated fashion.
Allowing smaller trades to be executed via automated trading venues will enable teams to focus on larger volumes, especially in a year where block trading and portfolio trading—where teams trade 10 to 1,000 bonds and even trade entire strategies, respectively—are becoming increasingly prevalent. During a presentation by Jane Street at FILS, the firm forecasted that 65% of investment teams will attempt to execute at least one block trade by year-end. In 2Q19 alone, Jane Street executed $14.9bn in portfolio trades, compared to $3.9bn in 3Q18.
As block trading edges toward mass adoption, Jim Switzer of Alliance Bernstein reiterated that data tools must play a key role in helping teams assess opportunities and analyze information. During a poll of roughly 200 industry professionals at FILS, the greatest challenges facing investment teams are collecting and organizing data points to effectively harvest insights and developing a sufficient internal infrastructure in place to evaluate liquidity options.
As the industry continues to adapt to the challenges of compressed margins, hunting for yield amid market turbulence and enhancing trade operations, IMTC remains committed to providing solutions that will enable investors to optimize their portfolios regardless of the size or sophistication of their operations.