Last week’s Fixed Income Leaders Summit in Boston was another reminder that this trading segment is rapidly getting up to speed with the latest technology – literally. Big investment banks like JP Morgan, Goldman Sachs and UBS have already built high-speed infrastructures to trade equities, so leveraging it for fixed income trading was a natural next step. Now smaller players are following suit.
With the attendance up 40 per cent from last year and so many big names from the industry taking part, the event provides a great barometer for market trends. Not so long ago it was a voice-led, old-school trading sector; now electronic data management and workflow automation are showing up in nearly every conversation. Discussions at the Corvil booth reflected this change.
We’ve been working with some of the biggest investment banks for a decade, but now find ourselves talking to smaller institutions as the market shifts inexorably towards electronic trading and data-driven business. As soon a trading goes electronic, speed becomes a factor – not necessarily ultra low latency, but certainly relative data processing and response performance. The reality, however, is that only a handful of global players have the technical resources to win by being the fastest. So everybody else has to concentrate on being smarter around the execution of trades. You might not cross the line first, but you can still be in the race.
This shift plays to the strengths of Corvil. As the benefits of electronic trading become apparent so do some of the challenges. When a business becomes more dependent on data going over the wire, bottlenecks and performance degradation can have such a detrimental impact that more sophisticated network analytics become critical.
When traders go through brokers they want to know that they are trading at the right market price and getting the best execution. They increasingly depend on Transaction Cost Analysis (TCA) to make sure they pay the least amount and rely on fast access to accurate data to ensure that it happens. TCA was another hot topic at the conference and an inevitable consequence of the shift to electronic trading.
So you start to need machines to watch over the machines; essentially the service that we provide at Corvil. We take packet data from the network and transform it into streaming machine-time intelligence. For fixed income traders it helps determine the best outcomes as they request a quote or prices from a dealer.
When buy side investment institutions send a request for prices over an electronic platform, brokers have to respond as quickly as possible. Technology helps them do this more quickly but the downside is that they are operating in a vacuum. They have no way of knowing how they fare against their competitors or what leads to different instrument pricing. Corvil believes there is a need for benchmarks, enabling dealers to see how they compare and ascertain how they are doing relative to others.
As fixed trading continues its transition to electronic trading, it follows a journey undertaken by all digital industries that puts data at the very center of the business. This opens the floodgates on finding new ways for network data to be analyzed. Not for the first, the pursuit of digital transformation is making Corvil more relevant to more businesses.
For further information on this sector, read "Key Efficiency Drivers for Evolving Fixed Income Markets"by David Murray, Marketing and Chief Business Development Officer at Corvil.