Innovative platforms for multi-asset trading

Innovative platforms for multi-asset trading, involving equities, bonds, currencies and derivatives taken separately or together, is actually quite a complex topic. There are many areas for innovation, from equity to bond trading and from pre-trade to post-trade.

Overview of innovations for equity and bond trading

An area of high innovation for many years has been equity trading, which includes automated execution, smart order routing, multi-lateral trading facilities, liquidity-seeking algorithms and new tools for TCA (transaction cost analysis). Today, with the regulation putting a strain on dark pools, there is a need for further innovation and differentiation, particularly block-trading venues, stock-exchange intra-day auctions and a new codification for IOIs (broker indications of interests) across all platforms.

For bond trading, especially in Europe, the picture is slightly different. The spectrum of innovation currently runs from pre-trading to post-trading. Electronic trading is gaining scope and is increasingly challenging voice trading. With regulatory pressure on dealers’ balance sheets, all-to-all semi-dark pools and lit order books have grown in popularity since the beginning of the year. On the pre-trade side, some firms are working on a standardized FIX network for the transmission of dealers’ inventory while others are developing pre-trade search tools for illiquid and sensitive instruments. On the post-trade side, we are also seeing innovation in the form of some solutions offered by large TCA providers and others developed by the buy-side itself.

Emergence of a new order management system model

How to deal with so much complexity in multi-asset trading today? From our point of view, the best means of embracing all these innovations is the OMS infrastructure - a central piece of technology for many trading desks worldwide. The frontiers between an OMS (order management system) and an EMS (execution management system) are blurring. Large OMS providers are integrating EMS functionalities and trading platforms into their system. A new multi-asset “OEMS” model has emerged. In the new-generation OEMS, the fixed-income workstation has been completely redesigned to display order reception, real-time market data, historical transactions, dealer inventory, order book liquidity and trade execution on the same screen. Trade history and dealer inventory are both auto-matched to orders, which makes a real difference to buy-side traders who currently have to switch from one system to another.

With more and more data being consolidated in the multi-asset OEMS, there is a new approach to execution, one implying a more cost-efficient and unified organization within the trading team. Head traders can organize their team differently. The Head trader may decide on emergency action when, for example, a strong imbalance between the equity order flow and the bond order flow happens. In such a case, very busy traders would delegate a part of their work to less active traders by using the OEMS. An OEMS has increasing capacity to filter and sort orders by liquidity criteria.

Consequently, fixed-income traders will not only manage the execution of bonds, currencies and derivatives, but will also be able to select the smallest tickets and the most liquid instruments, safely transfer those small orders to equity traders (under certain conditions) and spend more of their time focusing on the most sensitive trades.

Buy-side contribution to the new OMS model

However, the latest versions of multi-asset OEMS are not perfect and need feedback from the buy-side trading desk for further improvement, especially in the pre- and post-trade areas. The innovative power of OMS providers will not, on its own, be enough.

From our experience, the new fixed-income workstation displays historical transactions but the search parameters are currently limited to ISIN codes. As a result, we have created a search engine outside the core system. The tool can expand the scope of our search by adding, for example, the trade history on other instruments from the same issuer. Actually, this experimental work relates to the concept of “googlization” that we have tried to combine with Fixed-Income trading and shared with our OMS provider.

With their practical experience and capacity for cooperation, I believe that the buy-side multi-asset trading desks can make a useful contribution to innovation in the OMS industry, to the benefit of all institutional investors.

Fabien Orève
Global Head of Trading

This article has been the subject of a presentation to the Institutional Investor’s International TraderForum in Madrid on September 9th, 2015