Embracing the journey to Cloud technologies

Just a few years ago the idea of virtual trading floors would have been unthinkable. From one challenge to another, financial institutions had to consider the heavy burden of meeting rigorous security, performance, surveillance, conduct and reporting obligations. However, as new cloud technologies emerged, efficient remote trading has become a reality, and post-pandemic there has been a seismic shift in mindsets as to what ‘institutional-grade’ operational and business models should look like.

A recent survey canvassing 500 professional trading practitioners found a relatively even split of respondents favoring integration with a public cloud versus private cloud. Not surprisingly, smaller firms opt for cost-efficient market access and leveraging the economies of scale offered through public cloud infrastructures, while Tier 1 banks and larger financial institutions lean towards private cloud infrastructures with enhanced, stringent, and rigorous performance and security layers.

In our latest blog, Alex Walker, Vice President, Network and Data Sales, explores the pace of adoption of new cloud technologies and the significant impact of digital technology on workplace cultures and structures.

IPC Systems wins “COVID Management Initiative of the Year” at Singapore Business Review Management Excellence Awards 2022 with Unigy® Soft Client

Singapore, 18 November, 2022 – IPC Systems, a leading provider of secure, compliant communications and multi-cloud connectivity solutions for the global financial markets and trading community, announced that the firm has won the “COVID Management Initiative of the Year” Award at The Singapore Business Review Management Excellence Awards 2022, supported by IPC’s revolutionary solution, Unigy® Soft Client.

The Singapore Business Review Management Excellence Awards recognises exceptional companies leading digital disruption and technological revolution in the region. Now in its 8th year, the awards acknowledge management initiatives that made a positive impact to its workforce or customers during the global pandemic.

As the ramifications of Covid-19 unravelled, financial institutions were required to fast-track the development of digital solutions and re-examine how trading floors operated. As a hybrid trading floor fast became a reality, traders demanded mobility and flexibility, with the transition requiring both a dramatic cultural shift and technological upgrade – something IPC were ready for with Unigy® Soft Client – the industry’s leading solution for traders to work remotely.

With the application’s flexible deployment options, Unigy® Soft Client enabled customers to rapidly adapt to a work from home environment, whilst virtually replicating the same experience they have physically in the office, but from the safety of their homes. The pandemic demonstrated that the application facilitated traders and other regulated users to maintain secure, reliable, and compliant communications to their trading counterparties. It also permitted them to source liquidity while maintaining the same trade lifecycle workflows as they would on the trading floor.

During periods of unpredictability, access to the most up-to-date, efficient, cost-effective, and scalable technology was crucial to the survival of the trading floor. IPC’s Unigy Soft Client flexible deployment options enabled our customers to rapidly adapt to a work from home environment and maintain productivity and compliance in a remote setting. The deployment of our Soft Client product allowed us to not only assist customers during a time of uncertainty, but as a business it allowed us to capture additional market share against our competitors who didn’t perform as effectively during this time.” – Bob Santella, Chief Executive Officer, IPC Systems.

Our team holding the prize at the SBR Management Excellence Awards 2022 Awards Dinner

About IPC

IPC is a technology and service leader powering the global financial markets. We leverage 50 years of experience in delivering specialized communications solutions, helping clients anticipate, change and solve problems, setting the standard with industry expertise, exceptional service, and comprehensive technology. With a customer-first mentality, IPC brings together one of the largest and most diverse global financial ecosystems spanning all asset classes and market participants. As the enabler of this ecosystem, IPC empowers the community to interact, transact and react to market changes and challenges, and we collaborate with our customers to make them secure, productive, compliant, and connected. Visit ipc.com and follow us on Linkedin.

Connecting the Dots: Why Financial Markets Aren’t 100% Electronic

The ‘Fintech age’ took off in earnest in the mid to late 1980s with the advent of the first automated tools to support financial markets trading.  In short order, these products and services evolved from basic, screen-based communications solutions facilitating instant access – initially to interbank counterparties – to more sophisticated price distribution, conversational trading, and price matching systems that revolutionized the way traditional markets were traded.

Learn more about why financial markets aren’t 100% electronic in a new article from our Director of Consumer Solutions, Richard Hunter, featured on Markets Media.

IPC and BondWave Announce Partnership Offering Bond Traders a Simplified Pre-Trade Price Discovery Tool

NEW YORK, NY and WHEATON, IL – November 15, 2022 – IPC Systems, Inc., a leading provider of secure, compliant communications and multi-cloud connectivity solutions for global financial markets and BondWave LLC, an affiliate of First Trust Portfolios L.P. and a leading financial technology firm focused on fixed income solutions, today announced the integration of the flagship Unigy and IQ/Max® Touch solutions with BondWave Calculator, an innovative pre-trade price discovery tool. The partnership offers bond traders an integrated solution that automates the trading workflow by surveilling today’s market activity instantaneously.

The new collaboration leverages BondWave’s sophisticated trade benchmarking engine, alongside IPC’s extensive user community, with direct access through IPC’s IQ/MAX® Touch financial terminal – all delivered at a low total cost of ownership. The BondWave Calculator, as offered on the IQ/MAX Touch financial terminal, provides market participants with the ability to determine, on a pre-trade basis, the fair market value of a bond, while also surfacing additional benchmarks across the regulatory-prescribed ‘waterfall’. The collaboration means that users can do more in less time with the confidence that they have done their diligence for pre-trade price discovery.

“IPC is eager to welcome BondWave and their market leading technology onboard. Our combined expertise allows us to offer the global financial community direct access to IPC’s APP framework capabilities, alongside BondWave, through our IQ/MAX Touch financial terminal. Our strategic partnership is a game-changing proposition that transforms how traders consume applications and optimize workflows,” stated Bob Santella, CEO at IPC Systems.

The IQ/MAX Touch is a software-driven, flexible, extensible and secure communications device for delivering compliance, security and next generation user functionality to the capital markets. An intuitive and powerful tool for bringing advantages throughout your enterprise – a truly global, multi-lingual interface for multinational teams. The broad range of market participants relying on IPC’s solutions has become an integral part of one of the world’s largest and most diverse financial ecosystems, which provides reliable, secure access interconnecting global financial centers, allowing connectivity between more than 7,000 market participant locations across 750 cities in more than 60 countries.

For decades, IPC has been a leader in providing sophisticated technology and services that meet the unique and ever-evolving needs of the global financial markets,stated Michael Ruvo, CEO of BondWave. “Our proprietary trade benchmarking engine provides IPC’s vast user base with enhanced pre-trade price discovery tools that ultimately help them trade smarter and more efficiently.”

The BondWave Calculator is powered by BondWave’s Effi® platform, leveraging an API layer that enables seamless integration with partner and proprietary client applications. This new initiative allows users of IPC’s Unigy and IQ/Max Touch solutions to simply enter a security identifier, quantity, price, and buy/sell indicator to instantaneously calculate relevant benchmarks against which to compare their trade.                                                         

About IPC

IPC is a technology and service leader powering global financial markets. We help clients anticipate change and solve problems, setting the standard with industry expertise, exceptional service, and comprehensive technology. With a customer-first mentality, IPC brings together one of the largest and most diverse global financial ecosystems spanning all asset classes and market participants. As the enabler of this ecosystem, IPC empowers the community to interact, transact and react to market changes and challenges. We collaborate with our customers to help make them secure, productive, compliant and connected.


About Bondwave LLC

Founded in 2001, BondWave, an affiliate of First Trust Portfolios L.P., is a financial technology firm specializing in fixed income solutions. We serve a wide range of users including traders, compliance professionals, and RIAs from the smallest to the largest firms in the industry who use our tools to provide a superior fixed income experience to their clients while supporting critical regulatory mandates. Effi®, our Engine for Fixed Income, is the single platform through which we deliver all our solutions, providing intuitive dashboards and insights into every fixed income position and transaction. Capabilities include portfolio analytics and reporting, custom alerts, and proposal generation, as well as tools that support best execution, fair pricing, and mark-up monitoring and disclosure on both a pre- and post-trade basis. BondWave leverages advanced technologies and data science to develop proprietary data sets that fuel our innovative solutions.

For more information, please visit https://bondwave.com/ or contact info@bondwave.com.

Media Contact

Victoria Baillie

IPC Systems

+44 7824 126054  victoria.baillie@ipc.com

Daniel Levy 

Finn Partners for IPC

+44 20 7046 8354  IPC@finnpartners.com                

Carly Gray

Bondwave | Buttonwood Communications Group

(631)-560-8958 cgray@buttonwoodpr.com

IPC Wins ‘Best Cloud Provider to the Buy Side’ in 2022 WatersTechnology Buy-Side Awards

NEW YORK, November 4, 2022 – IPC, a leading provider of secure, compliant communications and multi-cloud connectivity solutions for global financial markets, today announced that it has won ‘Best Cloud Provider to the Buy-Side’ in the 2022 WatersTechnology Buy-Side Awards for its Connexus Cloud solution.

Connexus Cloud is a multi-cloud platform ecosystem that interconnects more than 7,000 diverse capital market participants across 750 cities in over 60 countries. The platform is designed to streamline communications throughout the trade lifecycle including buy-side firms, sell-side firms, trading platforms, market centers, liquidity venues, interdealer brokers, application and market data providers, and clearing/settlement services. Earlier this year, Connexus Cloud was also named “Best in Cloud” in the Markets Choice Awards and “Best Cryptocurrency Information Source” in the FinTech Breakthrough Awards.

The WatersTechnology Buy-Side Awards focus on the market-leading technologies developed specifically for use by buy-side firms, designed to allow them to operate more efficiently, transparently, and judiciously. This award recognizes innovative solutions that address the buy-side’s most pressing business, regulatory, operational, and technology needs.

“The strength of Connexus Cloud’s security protocols, combined with the size and composition of IPC’s widespread community of global financial-market participants, makes the platform a uniquely impactful solution to the buy-side. This win is indicative of IPC’s commitment to excellence and dedication to our valued customers as we head into 2023. We look forward to continuing to adapt to the demands of an evolving market as we serve the fintech community and our buy-side clients with the highest-quality cloud execution and compliance solutions on the market.” Bob Santella, Chief Executive Officer, IPC.                                                               

About IPC

IPC is a technology and service leader powering global financial markets. We help clients anticipate change and solve problems, setting the standard with industry expertise, exceptional service, and comprehensive technology. With a customer-first mentality, IPC brings together one of the largest and most diverse global financial ecosystems spanning all asset classes and market participants. As the enabler of this ecosystem, IPC empowers the community to interact, transact and react to market changes and challenges. We collaborate with our customers to help make them secure, productive, compliant and connected.


About WatersTechnology

Each month, Waters reports and analyzes the practical implementation of financial technology in the wholesale banking and securities industries. Since its launch in 1993, financial IT professionals worldwide have relied on the magazine for its focused, in-depth coverage of financial market data and technology and the human issues of talent management, staff retention, and compensation within the financial services community. With more than 10,000 subscribers, Waters readers enjoy the insights of CIOs and CTOs from the global capital markets. Waters is published by Incisive Media Plc. For more information, please visit www.watersonline.com


Certain statements contained in this press release may be forward-looking statements. Any forward-looking statements are based on current expectations, assumptions, estimates, and projections and involve known and unknown risks and uncertainties. Therefore, actual results may differ materially from future results expressed or implied by these forward-looking statements. 

Media Contact

Victoria Baillie

IPC Systems

+44 7824 126054  |  victoria.baillie@ipc.com

Mena Buscetto 

Finn Partners for IPC

+1 860 326 1698  |  mena.buscetto@finnpartners.com

Accelerating Change in the Financial Industry

Flash Friday with President and CCO David Brown and Traders Magazine! Read how IPC is accelerating change in the financial industry with uninterrupted delivery of mission-critical communications solutions to facilitate trader productivity and operational efficiencies.

According to David, financial institutions are continuing to leverage voice-based technology to enable seamless access to the global markets and ensure compliance and security against a complex regulatory backdrop.

David Brown

Weathering Today’s Market Volatility through Technology

With the ramifications of the global pandemic, IPC were ready to tackle change and ensure continuity of their systems and capabilities both internally and for clients. In this interview with DigitalCFO, David highlights how the past five decades have built a solid foundation of knowledge and expertise, allowing IPC to continue to deliver technological advances within the industry, even during times of uncertainty.

IPC Community grows as Firm joins SIX Swiss Exchange

IPC Systems, Inc., a leading global provider of secure, compliant communications and networking solutions for the global financial markets and SIX, which operates and develops infrastructure services for the Swiss and Spanish Stock Exchanges, today announced that IPC has become an approved Application Service Provider (ASP) for SIX Swiss Exchange, with Connexus® Extranet.

Performance-engineered for electronic trading, Connexus® Extranet is a private, highly scalable, reliable and secure financial extranet that leverages IPC’s fast-growing Connexus® Cloud to provide rapid connectivity to a global community of capital market participants. Via a single connection, members of the Connexus® Cloud ecosystem can link to one another and seamlessly communicate, transact, receive and distribute information.

“We are delighted to be adding SIX Swiss Exchange to our expanding portfolio of connected exchanges. SIX is one of the world’s leading exchange operators and we are thrilled to be able to proactively meet the demands of our customers – many of whom are looking to connect to multiple exchanges for market data and order routing,” said John Owens, Director of Global Exchange Relations at IPC. “The global financial community counts on us as a reliable and trusted partner. Through the addition of SIX to our ecosystem we are furthering our ability to provide rapid and highly stable connectivity to a global community of capital market participants.”

René Wild, Head Technical Product Support at SIX Swiss Exchange, commented: “Our service providers play a vital role in facilitating access for trading participants and market data vendors to our platform, and we are happy to welcome IPC joining us as a new ASP. We operate not only one of the most technologically advanced, but also one of the most stable trading platforms. We provide a wide range of diverse trading segments accessible with different order entry and market data interfaces and connectivity options.  Participants can tailor their strategies and market activity in order to benefit fully from our unique market structure and outstanding liquidity.”

IPC offers high availability, low latency, primary and secondary market insight as well as disaster recovery capabilities to optimize the experience for customers. The collaboration between IPC and SIX Swiss Exchange builds on the successful IPC global financial ecosystem. IPC is using the shared connection to allow customers a cost-effective solution that meets the demands of entry into the market.

Connexus® Cloud is IPC’s flagship, award-winning multi-cloud platform for the global financial markets, an ecosystem that interconnects over 7,000 diverse capital market participants across 750 cities in more than 60 countries. The world’s top financial institutions rely on Connexus® Cloud for order creation, order placement, trade execution, market data delivery, clearing, settlement, and accessing both trade life cycle services and influential marketplaces.


About IPC Systems, Inc.

IPC is a technology and service leader powering global financial markets. We help clients to anticipate change and solve problems, setting the standard with industry expertise, exceptional service and comprehensive technology. With a customer-first mentality, IPC brings together one of the largest and most diverse global financial ecosystems spanning all asset classes and market participants. As the enabler of this ecosystem, IPC empowers the community to interact, transact and react to market changes and challenges, and we collaborate with our customers to help make them secure, productive, compliant and connected. Visit ipc.com and follow us on LinkedIn and Twitter (@IPC_Systems_Inc).


About SIX

SIX operates and develops infrastructure services for the Swiss and Spanish Stock Exchanges as well as SIX Digital Exchange (SDX), for Post-Trade Services including Repo, Banking Services and Financial Information with the aim of raising efficiency, quality and innovative capacity across the entire value chain of the Swiss and Spanish financial centres. The company is owned by its users (120 banks). With a workforce of 3,685 employees and a presence in 20 countries, it generated operating income of CHF 1.5 billion and Group net profit of CHF 73.5 million in 2021. www.six-group.com


Certain statements contained in this press release may be forward-looking statements.  Any forward-looking statements are based on current expectations, assumptions, estimates and projections and involve known and unknown risks and uncertainties.  Actual results may differ materially from any future results expressed or implied by these forward-looking statements.


© Copyright 2022 IPC Systems, Inc. All rights reserved


Media Contacts:     


Daniel Levy                                    Victoria Baillie

Finn Partners for IPC                 IPC Systems

+44 20 7046 8354                    +44 7824 126054  

IPC@finnpartners.com             Victoria.baillie@ipc.com



Exploring the transformational effects of e-FX in the Cloud

Over the past few years, the FX world has embraced managed cloud solutions, mirroring broader digital transformation initiatives based on widespread cloud adoption. Our Chief Marketing Officer Ganesh Iyer was featured in e-forex’s September issue where he shared his insights on the benefits of a cloud-based business model and service provider for FX stakeholders, which include but are not limited to, the following:

  • 66% of respondents to a recent IPC survey reported that trading-related technology is important to meeting 2022 performance returns/targets
  • Connectivity is the most critical element of a firm’s FX infrastructure, serving as a combination of ease of access, onboarding and scale.

Firms must leverage cloud technology and connectivity to take advantage of emerging technologies and data sources to support AI and algorithmic trading strategies and other intelligent automation projects

Click here to continue reading.

Winning the Technology Race in Fixed Income – The Buy Side Perspective

What is the current role of fixed income technology and how do market participants see it evolving? Market structure consultant George Bollenbacher addresses these questions, explaining what makes the fixed income ecosystem so different than the other asset classes. In this article, Mr. Bollenbacher explores how technology is currently being used in fixed income, and what market participants on the buy side and sell side see on the horizon in its development. 


Advanced technology has impacted all financial markets, increasing speed, choice, and the volume of data. But these changes have been slower in fixed income (FI) than in other markets like equities and currencies. As the world and the world’s FI markets begin to emerge from a global pandemic, it is appropriate to look at the current role of technology in those markets, and to see where it will lead the industry in the future. In researching this topic, I interviewed a number of representatives of leading tech firms that serve this market and buy-side firms, as well.

The Unique Nature of Fixed Income

Since FI is somewhat behind other markets, like equities and FX, in the adoption of advanced technology, it is necessary to understand how this market is unique. The most salient factor is the disparity of issues within the market. Take liquidity. The market ranges from on-the-run Treasuries, where each issue can trade billions of dollars in daily par value, to seasoned municipal issues, where a single issue might not trade once in a year. In terms of trading, those securities couldn’t be further apart. In between are such categories as off-the-run Treasuries, investment grade corporates, mortgage-backed and asset-backed securities, and high yield bonds. Each has its own niche in the liquidity spectrum.

A second factor is the sheer number of individual issues. According to data provided by the CUSIP Bureau, there are over 2.3 million active FI CUSIPs (not including MBS pools), compared to about 475,000 equities (which number includes common stock, preferred stock, warrants, rights, mutual funds, ETFs and equity structured products). A market with almost five times the number of issues requires a fundamentally different approach to the use of technology.

A third factor is the terms of the securities themselves. They range from zero-coupon short-term securities with de minimis default risk (Treasury Bills) to securities with monthly interest and principal payments, significant default risk and an unknown average life (non-agency MBS) in the same portfolio. When combining the numbers of securities with the diversity just described, it is obvious FI is a completely different market than equities and FX.

Technology Demands of the FI Buy Side

As a result, the tech demands of the buy side cover a wide spectrum. One spectrum is the transaction sequence, as laid out below. The two rows are actually one sequence, but split into pre-trade (top row) and post-trade (bottom row).

It is important to note that allocation doesn’t happen for some, and maybe a majority of participants, such as hedge funds and mutual funds. But it is important for traditional asset managers. As evidenced by this diagram, it is virtually impossible for a single type of technology or algo to apply to all parts of the flow. So technology vendors often specialize in one or a few segments, often contiguous.

Another spectrum is security type and liquidity. Along that spectrum market testing and execution can take on a wide variety of forms. As a result of this disparity across several spectra, a simple question like “What is the biggest technology issue that bond buy-siders have currently?” can generate a wide variety of answers. From the perspective of a market venue, like BondsPro, David Parker, Head of MTS Markets International, says that the problem for buy siders is too many venues and too much data to process. For an aggregator like Trumid, Chief Revenue Officer Bryan Hankins says that the problem is aggregating and making sense of a large and disparate data universe. For an aggregator, distributor, and trading company like InspereX, President David Rudd says it’s automating a set of cumbersome processes around pricing and execution, and trusting the available data.

However, ultimately the buyside technology demands can be divided most effectively along liquidity lines. At the liquid end of the spectrum, which has most of the trading volume and most of the technology, but not most of the outstandings, technology needs tend to center on a proliferation of data, venues and possible counterparties, and on how to route and manage orders. In the illiquid segment of the market the problems center on valuation of issues that might not trade once in a year, and the handling of orders that could serve to move the market just by their arrival.

Liquid Market Technology

At the liquid end of the spectrum, the growing number and type of trading venues/counterparties worries everyone and is a problem to be solved. It actually affects buy-side participants at two points in the sequence: gathering the market data necessary for investment decisions, and market testing and execution of the order generated.

According to Adam De Rose, Director of Product Management EMEA SS&C’s Eze, there are now 164 destinations where the buy side could execute trades in FI securities, a number he attributes to John Greenan at Alignment Systems. And, according to Ganesh Iyer, Chief Marketing and Strategy Officer of IPC, all those venues/counterparties actually make for a quite fragmented market. And not all venues are available to any buy-side user. MultiLynq’s Co-Founder Patrick Scheideler sees the biggest issue in the credit markets as the growth of e-trading, advancing beyond the current capabilities of the technology most buy-side firms are using, and overwhelming the buy-side’s infrastructure. This will require a simplified approach on both sides of the market, he adds.

Tradeweb’s Managing Director, AiEX and Workflow Solutions, Brian Devers thinks that in the liquid sector there is still a big task around identifying a correct protocol and liquidity pool for each trade. He notes the promise of AI in this sphere, allowing slimmed down trading desks to handle an even larger flow. Other technologists, like 28Stone’s Founding Partner Tom Dolan, see this segment as somewhat less liquid than it seems. As a result, even in this market, he sees trading tools and strategies as essential to achieving something like best execution.

David Landisman, SVP and Sr. Director of FactSet, recommends traders use price aggregators to access market data, so as not to telegraph trading intentions while still planning a strategy. Once that data is accessed, Vuk Magdelinic, CEO of Overbond, sees an important role for smart order routing, including deciding which orders can be handled completely by algos and which require human intervention. It also helps determine the path to best execution in venue and trading protocol selection and reduces the number of child trades needed to execute the full desired size.

Another issue in the liquid space is that the FI market is still essentially a principal market. It is where the buy side generally faces each counterparty directly. That means that some, if not many, of the prices that a manager might see on a particular product are not useful to that firm if it doesn’t already have a trading relationship. Thus, one of the useful technologies in the liquid market is the screening of market data to indicate which prices are available to trade on and which are out of reach. Of course, anonymous venue prices are always available, as long as the manager is a member of, or has access to, the venue.

Illiquid Market Technology

At the other end of the spectrum, the problem isn’t a diversity of data and venues. It’s getting current market information about a specific issue. Since this problem is as old as the markets themselves, and since bond mutual funds have to price every holding every trading day, many large buy-side firms have developed pricing matrices that ingest trade prices for a benchmark set of securities and derive values for everything they own. Or they can utilize commercial services like Bloomberg. For a bond market aggregator and trading company like InspereX, President David Rudd says the biggest problems in this sector are automating a set of cumbersome processes around pricing and execution, and trusting that a trader has all the available data, and that it’s valid.

Tradeweb’s Managing Director, Head of U.S. Cash Credit, Iseult Conlin sees a proliferation of data in more opaque and illiquid sectors of the fixed income market, which creates a need for information filtering, that removes what doesn’t apply and purifies what does, potentially allowing for greater use of EMSs in trading and transaction decision-making.

In addition, the transaction process in the illiquid sector is somewhat different from the liquid. In liquid securities, the executor (often the manager) scans the available markets and decides on 1) which execution strategy to use; and 2) which venues or counterparties to contact, often with a RFQ. In the illiquid sector the executor must make a strategy decision with very little market data on the security(ies) in question, and must depend on whatever data is available for comparable securities.

According to LTX’s CEO, Jim Toffey, new pre-trade liquidity metrics are available to help traders discretely identify trading opportunities in less liquid bonds and quantify the viability of these opportunities in the current market. A complication with inquiries such as RFQs is that they can move the market in that particular security before the executor even makes a decision. The new liquidity metrics allows traders to anonymously find natural contra liquidity while reducing information leakage.

To top it off, the trading volume in this market sector is significantly lower than in the liquid sector. Bonds tend to trade fairly frequently for a couple of months after issuance. Then the volume dries up gradually over the next year, until it can be close to zero for the rest of its life. The only time the volume picks up appreciably during the latter period is if the credit quality of the issue is perceived to change, especially if it is expected to decline. With these lower trading volumes, the buy side is less likely to justify an expenditure on advanced technology for this sector. As a result, the illiquids are much more difficult to automate, and we find far fewer technology vendors that specialize in it.

Another factor effecting technology use is two specialized types of trading: portfolio trading and spread trading. Portfolio trading occurs when a manager (or other market participant) trades a portfolio of securities at a single price, expressed as a percent of the total par value. Although this is a convenient way to trade a large number of securities, the portfolio must  be broken up into individual securities, with their individual prices, for settlement. This type of trade has grown in volume with the growth of ETFs. Spread trades are usually done in a single security or a small portfolio. Still, they are executed at a yield spread to a specific security, usually Treasuries. Sometime after the trade is completed, the yield of the benchmark security is derived, and then the price of the traded security is determined.

Applying Technology to the FI Markets

Given the disparity of the FI markets, across several spectra, we can draw two conclusions: 1) advanced technologies can provide significant value throughout the transaction cycle; and 2) it can be extremely difficult to apply advanced technologies in this space. Let’s look at both aspects of this dichotomy.

First, from the value side. As the types of trades in the market multiply, and as the number of possible venues/counterparties expand, the first place to look is execution management. This encompasses two distinct choices: 1) the trading strategy, which is based on urgency, liquidity and market outlook; and 2) the execution location. Market pros often conflate those choices, but experience has shown that choosing the wrong strategy can undo the choice of location, and vice versa.

With the growth in the number of venues/counterparties, there has been a quantum change in two inputs, 1) the availability of market data (which can be needed even faster than TRACE provides it); and 2) the availability of executions for a particular manager. While humans can deal with this increase, there is no question that technology can add tremendously to the pre-trade process.

Algos that scan all the data sources for prices and volumes on all FI securities distill much more information more quickly than a human. This distilled information can be used to enhance the first step in our flow, market analysis. It can also screen for market data that comes from sources a manager can’t use, but that information can be utilized in managing an order to the venues/counterparties the manager can use. That kind of filtration and application of data is at the pinnacle of modern technology, and may not yet be readily available in the FI markets.

On the difficulty side, let’s return  to the diversity problem. One aspect is comparing security characteristics in a 2.3 million node matrix. In order to move from a theoretical relationship, useful for daily pricing of a portfolio, to an actionable relationship, useful for executions, the algo has to incorporate many more data points and trend analyses. In many cases, managers don’t believe that algos can reliably detect the kinds of aberrations that they need to generate alpha, so they only utilize technology once the investment decision is made.

The second difficulty is the constantly changing nature of FI markets. Not only are new venues and counterparties appearing (and disappearing), but new trade types are evolving. As a result, any FI trading technology must evolve continuously, not a set application one can buy and run. Because systems like these depend on receiving data through APIs, they must adapt to data and API changes on the fly. It is difficult to design systems that intelligently adapt to these changes, so many vendors have to regularly update their interfaces, and the users of those systems have to integrate those changes into their own applications in a never-ending stream.

Finally, asset managers resist using advanced technologies for two reasons. The first is that it’s difficult to justify the costs of advanced technology, since  the perception is that human management of the process is adequate. In addition, according to LTX’s Jim Toffey, screen real estate is tight, so integration between e-trading platforms and OMS/EMS providers is key to advancing technology adoption.

The second reason is less obvious – the natural resistance of those currently performing the job. We’ve seen this play out in many industries, like automotive, but it is less obvious, and less talked about, in an industry where there is a high premium on the creative intelligence of the work force.

What the Buy Side Says

What does the Buy Side think about some of these issues? One large manager said, “What little I would share for FI trading is that axe volume is a challenge. Too many brokers, too many, too frequent updates. Solutions to the axe problem are tech filtering/throttling/aggregation capability as well as asking/dictating to brokers to limit axe volume.”

Another manager said, “I think portfolio trading is still really interesting. It has gotten a lot of attention recently, a lot of hype maybe. How useful it is depends a lot on the end user – and there are certainly some drawbacks and risks that don’t get enough attention. We are also very interested in fixed income EMS solutions. It’s early days there and half the time I bring up FI EMS – the answer I get back is, ‘What exactly is a Fixed income EMS?’ I think on the technology side that solution is just getting started.”

Finally, in an article in Markets Media, Lindsey Spink, Co-Head of Global Fixed Income Trading, American Century Investments said, the Street is less likely to provide tighter bid-offer markets, because they have less outlet to recycle risk. The result is that the actively traded universe shrinks to anything newly issued and larger-cap names, and the smaller, and ‘off the run’ bonds become increasingly illiquid. Liquidity has continued to migrate outside of traditional channels, which makes the need for new technology more urgent.” He also said, “Gaining access to new pools of liquidity is very difficult with legacy systems. Moving a large ship towards the standards of application programming interface (API), algorithms, and execution management system (EMS) is not simple. The fixed income market is not going to “equify,” but it is evolving with its own set of new standards and practices.”

Looking Into the Future

So much for the past and the present, as the all-important question is what role will technology play in the future? Let’s begin with three years into the future. The responses were interestingly varied on technology’s role.

BondsPro’s David Parker expects dealers to move to an “electronic first” mentality around executions and for this pattern to migrate down the liquidity spectrum. He also expects investors to start using technology to set up and monitor hedges. David Landisman of FactSet expects electronic trading and venues to expand, and he sees regulation of that trading to increase. IPC’s Ganesh Iyer expects more participants in the dealer and venue roles, using more advanced technology, and more trading on all-to-all venues. Trumid’s Bryan Hankins expects human expertise to be combined with designing, utilizing and supporting algos, as opposed to algos simply replacing people.  And 28Stone’s Tom Dolan expects a growth in venues and trading modalities to lead to disintermediation within the trade flow.

Click here to read the full article on tabbforum.com