Embracing Change in Fixed Income Trading

The Fixed Income market structure has become increasingly complex as electronification has taken a stranglehold on an asset class that has dragged its feet behind that of Equities and FX. The area that has seen the biggest evolution has been the growth of new Fixed Income trading platforms, giving the buy side new methods of accessing liquidity.

The need to improve access to liquidity and a push for alternative trading protocols beyond RFQ has been a major driver for this. Of course, the knock-on effect of an increased number of trading platforms is fragmented liquidity, thus complicating reliable price discovery and creating an aggregated view of liquidity—an increasingly difficult prospect. Therefore, one of the key functions of any incoming Fixed Income EMS must be the promise to aggregate liquidity from a number of sources, making data collection, price discovery and future automated trading prospects an easier possibility.

Overcoming Challenges

Cost and quantifiable return on investment remain significant barriers to the adoption of new trading technology. Yet, amidst these challenges, Fixed Income traders are placing increasing emphasis on core EMS functionalities. 

For those who do not currently use an EMS, the biggest barrier to entry is the view that the current standards of EMS providers are not good enough for Fixed Income trading, followed by concerns over a lack of collaboration between platforms, sell side and EMS providers—linking into the view that market connectivity and enhanced views of liquidity are two of the most important selection criteria.

There are also many with concerns about the ability to seamlessly integrate an EMS within existing legacy infrastructure. Issues include a lack of connectivity, API availability, and dataset centralisation, making integration with current systems difficult. Technical resource limitations also hinder the implementation of EMS solutions, particularly in terms of connectivity and data aggregation. Moreover, some members mentioned the need to refine proprietary OMS and optimisation models to better utilise aggregated market data from EMS and other sources.

In very black and white terms though, the consensus from our members seems to be that it is better to have an EMS than to not, and using a bespoke Fixed Income EMS offers a significant trading advantage. A multi-asset EMS is still likely to give you a trading advantage, however, common challenges include a lack of customisation and connectivity issues which are not as comprehensive as their bespoke counterparts.

Navigating the Vendor Landscape 

For the reasons outlined above, finding the right EMS partner for your desk is crucial. Here’s a closer look at some prominent players and key considerations that were discussed in our Café…

CRD:

• CRD stands out for its comprehensive EMS solution covering multiple asset classes, including Fixed Income.
• Its platform offers essential functionalities like access to liquidity from a single blotter and support for various instrument types, such as bonds, futures, IRS, and CDS.
• Integration with CRD’s EMS may provide seamless connectivity within the firm’s infrastructure, streamlining trading workflows.
• However, users should be aware of potential gaps in functionalities, particularly in derivatives trading and support for proprietary information.

Adroit:

• Adroit specialises in Fixed Income trading technology and has gained traction among buy side firms.
• Integration with platforms like CRD may offer synergies and enhance the overall trading experience.
• Pricing structures vary, and firms should carefully evaluate the cost-effectiveness of adopting Adroit’s solution.
• Adroit’s focus on Fixed Income trading may address specific needs within this asset class, but thorough due diligence is essential to ensure alignment with requirements.

FlexTrade:

• FlexTrade offers a versatile EMS solution, catering to both Equities and Fixed Income trading.
• Its platform boasts several key features, such as multi-venue support, connectivity to various liquidity pools, and aggregation of market data.
• Users may appreciate FlexTrade’s ability to handle trading across multiple venues and provide meaningful insights into market quotes.
• However, firms should assess whether FlexTrade’s solution meets their specific needs in terms of functionality, integration, and pricing.

Portware:

• Portware is recognised for its EMS capabilities, particularly in equity trading, but also offers some Fixed Income connectivity.
• Integration with Portware’s platform can facilitate Fixed Income connectivity and streamline trading processes.
• Users may find Portware’s solution useful for accessing liquidity and efficiently managing trading workflows.
• However, firms should evaluate Portware’s suitability for Fixed Income trading and assess any gaps in functionality or support.

Virtu:

• Virtu Financial has emerged as a significant player in the Fixed Income EMS space, offering advanced trading solutions.
• The company may provide comprehensive post-trade offerings, enhancing the overall EMS platform.
• Users may benefit from Virtu Financial’s expertise in market connectivity and its focus on improving pre-trade to post-trade workflows.
• Firms should consider Virtu Financial’s track record, reliability, and commitment to innovation when evaluating its EMS solution.

Looking Ahead

As the Fixed Income EMS landscape continues to evolve, firms will face new opportunities and challenges. Embracing innovation and leveraging technology to streamline processes will be key to staying ahead in a rapidly changing market environment. By understanding key trends, challenges, and opportunities, firms can position themselves for success in the dynamic world of Fixed Income trading.

In conclusion, the journey towards greater electronification in Fixed Income trading presents both challenges and opportunities for market participants. By embracing change, fostering strategic partnerships, and leveraging technology to enhance efficiency, firms can navigate the evolving landscape with confidence. The road ahead may be complex, but with a clear vision and a commitment to innovation, success is within reach.

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