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Fixed Income Connectivity for Liquidity – Now It’s Necessary

Access to liquidity keeps getting harder

by Ganesh Iyer, Director, Global Product Marketing, IPC

Look around you. Access to liquidity keeps getting harder. So, leveraging connectivity to a capital markets ecosystem keeps getting more essential for fixed income trading. Why such a liquidity crunch?

Banks continue to be under pressure from low interest rates and and tougher regulations that are affecting their balance sheets. The alarmingly regular occurrence of black swan events in the global markets has investors reducing their leverage and risk tolerance and, at the same time, bid-ask spreads widen making liquidity premiums high. When one adds in in low oil prices, weakness in most emerging markets, a slowdown in China, a surging U.S. dollar, fragmented liquidity venues and a proliferation of trading protocols it becomes clear why connectivity is more important than ever. Savvy market participants are in search of greater connectivity for flexibility.

As we look at other fixed income market structure trends, we see that:

  • The voice-based OTC market will continue to be significant
  • D2C electronic protocols such as RFQs and order books – electronic versions of the telephone interactions – will grow
  • Buy-side to buy-side platforms that aggregate liquidity and bring together natural buyers and sellers will also experience demand

Urgent sellers need to access natural buyers as well as opportunistic and alternative liquidity providers. Therefore, platform connectivity to the buy-side is critical. Building one’s own network is possible, but very difficult both in terms of underlying technology and the time it takes to create the essential connectivity into dealer and client platforms.

The answer:  connectivity to an already built, diverse financial ecosystem; one that includes a community of broker/dealers; inter-dealer brokers; exchanges; dark pools; hedge, pension and mutual funds; institutional investors; trade lifecycle services; market data and counterparties as well as liquidity venues. Dynamic access to a global network can also provide:

  • Multiple viewpoints
  • Aggregation of risk
  • Transparent trade analysis

All these advantages can benefit fixed income players. Are such ecosystems available?

Yes, they exist today. They keep expanding to offer participants greater and greater resources to help them generate alpha. Connectivity to such global financial ecosystems can quickly bring efficiencies and peace of mind for fixed income marketplace members – their access to liquidity is much more assured.

Time to look around you for greater global connectivity. No longer an option, but rather a necessity.