Liquidity key to fixed income trading decisions – survey

The ability to access liquidity tops the concerns identified among US and European institutional traders, according to the latest Fixed Income Institutional Voice Survey published by trading network Liquidnet.

Regulations such as Mifid II as well as changes to market structures, has led to changes in trading requirements expressed from the buy side, Liquidnet suggests; this has in turn led to more discussion around what technology to put in place or access to best deal with such changes.

The Survey suggests that “firms who are more aware of Mifid II have a better understanding of the importance electronic trading will play once the regulation is in place,” Liquidnet stated.

Key trends identified through the Survey include:

  • Mifid II is driving global standards: As the January 2018 deadline draws closer, the implications of the European-based legislation has attracted interest from a global audience with gaps emerging between US and European traders. Approximately one third of US respondents are still somewhat neutral about Mifid II’s potential impact. Over 91% of European respondents were aware of their firm’s Mifid II plans, aligning with 86% of European traders believing the regulation will send more corporate bond trading to electronic venues. By contrast, only 25% of US-based traders are aware of their firms’ Mifid II plans, with only 39% believing Mifid II will send more corporate bond trading to electronic venues.
  • Electronic trading is on the rise: Access to liquidity remains the number one focus of both US and European traders when selecting a trading venue. More than 50% of respondents indicated that liquidity conditions were better compared to a year ago, and half of those surveyed reported an increase in fixed income electronic trading in the past year. These positive market conditions were further reflected with 54% indicating that peer-to-peer platforms (such as Liquidnet) were complementing existing workflows.
  • Integration and industry buy-in remain key venue selection criteria: More than half of all respondents (58%) indicated that OMS integration was an important factor when selecting a trading venue. OMS integration not only ensures access to numerous liquidity pools, but provides the necessary Mifid II audit trails, making it an ideal tool to help with best execution requirements. “Critical mass” came in as a close third in the survey results: Liquidnet’s platform has experienced notable growth in users since launch, with the fixed income member community growing to more than 690 active traders.

Constantinos Antoniades, global head of Liquidnet Fixed Income noted that traders are concerned about the impact on liquidity that greater transparency driven by regulatory changes may bring, while Mark Pumfrey, head of EMEA, added that: “Although a European regulation, Mifid II has far reaching implications as global trading firms start to deploy best practices around compliance, transparency, and audit trails across both Europe and the US. As discussions with our members around the impact of Mifid II evolve, we expect the gap between US and European markets to narrow, with the US increasingly directing more volume toward electronic venues.”

The Institutional Voice Survey results are based on 52 responses from Liquidnet’s member network of asset managers based in North America, Europe and the Asia-Pacific regions. The Survey was conducted over five weeks to 19 May 2017.

Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 17 years he has been based in London writing about funds and investments. From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope. Jonathan was awarded Editor of the Year at the Professional Publishers Association (PPA) Independent Publisher Awards 2017. Shortlisted for the same in 2016, he was also shortlisted in 2017 and 2015 for the broader PPA Awards category Editor of the Year (Business Media).

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