Mostly… fixed income and cross product eTrading

November 28, 2007

Wanna be top 5?

Filed under: etrading — holky @ 11:58 am

With FT showing that Euro bond market is changing (also in waratah) with the top 6 banks receiving over 45% of the flows – it includes a comment “Small players just don’t have the resources to compete as well now – it is definitely becoming more concentrated,” according to the head of fixed income at one of the largest European players.

While you’d expect the head of fi at one of those big boys to talk their own book, could a firm with aspiration to break into the top 5 do so by picking up some of the better traders from the existing top 5, and asking them to repeat their success at the new place? 

Sure, there are of course likely to be some technology challenges (surely everyone even half decent can quote bonds now?) and then there’s the client relationships … including ‘street’ perception of the house in question; so you’re going to need some pretty good eSales guys in to help get the new & improved offering out there and desired.

But over and above all of that I wonder if the main requirement that the new bank has risk appetite to let the traders get on with it, and the marketing budget (maybe also using that to prop up trading p&l in low margin products) to match it’s aspiration, and the fundamental trading management policy defining that the traders “last look” in the etrading cycle is only there so you can wave at the trade as its on its way into the book?  (Ask a client what they like about Autobahn, Barx, Jpex and certainty of execution is way up there).

Or is it really game over – the rankings are pretty much cast in stone, so move onto the next product set? 


1 Comment »

  1. I am not so sure about this one gentlemen. Breaking into the “top” does not seem to be where the thinking is these days. A client wants to be able to simply click to trade FI. More are asking if there is a way to API into eFI liquidity and real time pricing data. Even more want derivative data and since the “top 5” don’t offer it, these customes are aggregating it themselves and buying it from some very unusual sources from hedgefunds to prop desks.

    For FX “being the top” was a theme/strategy done over and over since 2000-no joy; the efforts were expensive- both the ecommerce of the large banks, and certainly before that in the good ol manual days…”who will be Euromoney’s best bank for FX? I can show u 3 pips in size…and so on…( I know now that mantra for those dinosaurs is .5 pip in 50! I hear it often from the salesgals).

    Just look at what MS and LEH have done in their eFX in 2007. It’s about making money–and right away…no J curve, no rankings, simply making money from good customer flow, PB flows, and organized trading the old fashion way; traders who have marvelous liquidity aggregation at the touch of a button, click of a mouse or in response to an algo they wrote just an hour before.

    The new FI Ecommerce-which I must add is moving quickly to Etrading foci- will be about offering good liquidity and STP to customers; fast and easy. PM’s and their execution desks, who are being asked by their new managements for 2008 why FI trading is not more like Equity etrading…and the management is not taking the old “well FI is very different then Equity” answer this year. These new managers (educated by Equity etrading managers-or Equity etrading managers themselves) are rapidly pointing to a US Treasury market that has more eflow than voice, MBS TBA market that is on the verge of having API access to IDB’s, and a HG, HY, and yes EM bond market that has pretty decent eliquidity via retail ECN’s in up to about 750,000 notional/75 bonds.

    Thats the buy side! The sell side management is asking, why are “black box” funds making so much. Arent they making it off of our flow in the first place? Ah! Well good morning and welcome to the new millenium.

    It’s finally here. Take the lessons and tech from Equity, Futures, and even the simple FX market and go forth with new market structures for FI. Seek trade volume never seen before for FI. Yes, help to patch that CDO/MBS hole in the world!

    Comment by lacidar — November 29, 2007 @ 3:19 am

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