Fixed Income Leaders 2020

12 - 14 October, 2020

CCIB, Barcelona

+44(0) 207 036 1355



NEW AVENUES TO ACHIEVING ALPHA



08:30 - Buy Side Keynote

Leading the way: What are the top 3 critical success factors for creating a fixed income desk that embraces innovation and is adaptable to constant growth on a global scale?

Daniel Leon, Global Head of Trading & Securities Financing, AXA Investment Managers

Plenary: Tips to be the best trading desk

By fidesk - October 9, 2019

A sophisticated analysis of trading impact, total cost and the market ecosystem is imperative to the success of a buy-side fixed income trading desk, said Daniel Leon, global head of Trading & Securities Financing at AXA Investment Managers, opening the FILS summit in Barcelona.

He referred to chief executive Andrew Bailey’s July speech that firms ‘must be able to run their business without LIBOR by end of 2021’ or risk serious consequences.

“Our clients are looking for us to help them make sense of this fragmented market,” he said. “This is how we are going to be the top trading desk. The key point is that the market is extremely splintered and there are so many elements that can impact a trade, we must be able to address them.”

The level of complexity that firms face in assessing the costs of trading and the value they generate for clients has become significant, due to the range of instruments and protocols that must be navigated. Traders also need to comprehend the underlying causes behind the metrics that allow them to analyse their activity.

“You need to understand when the repo market is going to affect you, you need to know when derivatives will move and the cash will not move,” he said. “You need to know what is the best way to put a meaningful trade together for your clients.”

Leon gave the example of his firm’s trading team analysis of their execution quality. Based against the mid-price in the market found they were saving 64% of the bid-offer spread. However they were a better seller than they were a buyer. This was largely as a result of size bias, as sell trades are typically smaller, along with quantitative easing – with the European Central Bank (ECB) as a buyer – and the cost of trades on sell-side balance sheets, which was also significant.

The firm also conducted an analysis of its repo market activity, fearing that the withdrawal of dealer balance sheet would potentially close the market to them. This did not happen, despite the impact of the leverage ratio, part of the Basel II capital adequacy rules which meant that repo was 100% of cost on the bank balance sheet.

“At the same time that regulation was making repo very expensive … cash at the bank level was extremely expensive … and so when we were lending govies to banks for three years or five years we got an amazing price”

However, he observed that having all of this information meant nothing if it was not turned into better trading decisions.

“If you need to help a client do a transition and they need long-term funding, you need to understand the impact of your trade, and that is not the pure market impact, it is balance sheet impact, how it will spread, what it will cost,” Leon observed. “You need to move way beyond what you used to look at. If you are able to turn that into meaningful trading decisions then you have won it. The hardest part is getting your repo trade speaking to your derivatives trader speaking to the bond traders.”

He said that AXA IM maintains separate teams trading cash and derivatives instruments – also split by flow and complex products – which made communication key. As clients face a range of investment choices, the overall trading team has been developed to be flexible in providing a solution to these potential challenges, which hinges upon that capacity to manage complexity, fragmentation and influences from central banks to regulation.

“We have imbalances from the market that can come from anywhere, and these are what you need to be ready for.”




09:10 - All Star Panel

Embracing a new era of fixed income: What new FICC infrastructure should you leverage now to improve workflow efficiency and achieve operational alpha?

Moderator: 
David Bullen, Director, Lorgwood Limited
Panel:
Nick Robinson, Head of Trading, Insight Investment
Daniel Mayston, EMEA, Head of Electronic Trading and Market Structure, Blackrock
Jonathan Gray, European Head of Fixed Income Liquidnet
Scott Eaton, CEO, Algomi
Gareth Coltman, Global head of Trading Automation, MarketAxess

Did MiFID II spark a revolution?

By fidesk - October 9, 2019

An ‘all-star panel’ provided contrasting views on the pace of change being wrought by regulation and technology in Tuesday morning’s session, ‘Embracing a new era of fixed income’.

Scott Eaton, CEO of Algomi, said the effects of trading protocols and platforms over the 18 months since the revised Markets in Financial Instruments Directive (MiFID II) came into force represented evolution rather than revolution, and certainly “nothing apocalyptic”.

Accepting that the fixed income market is adapting technologies pioneered in other sectors, Gareth Coltman, head of European product management at MarketAxess, insisted that the pace of change is accelerating.

“If this is evolution, it’s happening pretty fast,” he said, adding that growth in the uptake of automated trading options is now “exponential rather than linear”. Coltman did, however, acknowledge that some widely-anticipated changes would remain in the slow lane, suggesting a 10-year time line for a European fixed-income consolidated tape.

With global distribution capabilities across buy- and sell-side institutions, Tradeweb and its few peers are in an increasingly strong position. Strong enough, suggested Hult’s interviewer, Philip Stafford of the Financial Times, to attract the attention of regulators.

Less contentiously, panellists found common cause around the idea that choices for traders are now widening and use of technology and data are assuming a greater role in negotiating those choices.

“Liquidity formation is changing,” said Jonathan Gray, European head of fixed income at Liquidnet, warning that asset managers could miss out on opportunities if not sufficiently alert to fragmentation.

Addressing the session’s subtitle – ‘What new FICC infrastructure should you leverage now to improve workflow efficiency and achieve operational alpha?’ – Nick Robinson, head of trading, Insight Investment, explained the buy-side impact of fragmentation across protocols and providers.

“For fixed income trading desks, the challenge is to identify the ones most relevant to our asset classes and then to establish the most cost-effective means of connectivity. Buy-side desks cannot and probably should not connect to every platform out there”

Robinson’s view was supported by Daniel Mayston, EMEA, head of electronic trading and market structure at BlackRock, who called on buy-side firms to more fully consider their overall competitive position when investing in their fixed-income trading operations, adding that “superior analytics” will be needed.

“Data is the glue that binds all this together”



09:50 - Keynote Interview

The next big shifts in fixed income trading

Billy Hult, President, Tradeweb Markets
Philip Stafford, Editor, FT Trading Room, Financial Times

Hult: The dealer business is changing

By fidesk - October 9, 2019

Who are the big beasts of the bond markets today? The red ink on banks’ recent quarterly earnings reports writes the latest chapter in the story of failing sell-side fixed income, currency and commodity (FICC) business models. Electronic liquidity providers can lay a strong claim to being the new ‘masters of the universe’, as they continue to grab market share across fixed-income asset classes.

In a keynote interview yesterday, Tradeweb president Billy Hult acknowledged the shift in liquidity provision away from traditional market makers.

“The world is changing. Five or six years ago, there were perhaps 10-12 big banks in each of our markets. That has shrunk”

If you are looking to build a business supplying fixed-income liquidity, you do not hire traders any more, he said, you invest in technology and focus your resources on getting your prices in front of customers.

But might the major electronic trading platforms really be the dominant force in today’s markets, their business models boosted by regulatory reforms and turbo-charged by the appeal of all-to-all trading protocols?

With global distribution capabilities across buy- and sell-side institutions, Tradeweb and its few peers are in an increasingly strong position. Strong enough, suggested Hult’s interviewer, Philip Stafford of the Financial Times, to attract the attention of regulators.

Hult recognised the potential for tension, but said the firm understood its responsibilities. “As a platform, we have got to have the trust of the network to be successful. We will never lose sight of the need for trust and integrity,” he said.

Prompted by Stafford to also look ahead to future developments, Hult said Tradeweb would build on the ‘baby steps’ already taken in the exploitation of artificial intelligence. Here too, he said the firm was alert to the implicit ethical risks, agreeing that industry-level consensus on standards might be necessary.

“We’re super-aware of the issue. After all, there is nowhere to go once you’ve lost your reputation.”

THE DESK OF THE FUTURE



11:00 - All Star Panel

Getting your data in check: How can you truly aggregate your new internal and external data sources to enhance your workflow and gain a more transparent view of fixed income markets?

Moderator:
Rebecca Healey, Head of EMEA Market Structure and Strategy, Liquidnet
Panel:
Oscar Kenessey, Head of Trading, Fixed Income, Derivatives and Currencies, NN Investment Partners
Carsten Just, Head of Fixed Income Trading, Nordea Asset Management
Ruben Costa-Santo, Head of Multi-Asset Analytics, Virtu Financial
Anthony Belcher, Head of ICE Data Services (EMEA), ICE

Could buy-side share data?

By fidesk - October 9, 2019

Oscar Kenessey, head of derivatives, fixed income and currency trading at NNIP has suggested that sharing data between asset managers could help to overcome industry wide challenges, speaking at a panel on the first day of the Fixed Income Leaders’ summit.

“I don’t really see it [happening] but more sharing between buy-side firms would be a small but interesting step,” he said.

Carsten Just, head of fixed income trading at Nordea Asset Management, supported Kenessey’s suggestion. He noted that the more data the buyside had the better, however, much of what was available was neither standardised nor of good quality.

He said, “The more data and history you have the better. Once data is lined up you can use it as a window to look into an opaque market. But the data is in variety of shapes and data cleaning remains the big issue.”

Just added that Nordea worked with data providers to support the internal asset manager’s internal efforts to improve data quality, yet he still encountered ‘a lot of noise’.

Panel moderator and head of EMEA market structure and strategy for Liquidnet, Rebecca Healey, challenged the data providers to explain how they could improve quality and be more efficient.

Anthony Belcher, head of ICE data services, said regulation such as MiFID II had fragmented the amount of data sources feeding into the buyside, and had made the landscape more complex.

He added: “We are a community; we are not in an isolated position and that is as true for the vendors as it is for other participants in the marketplace. We work closely with software providers to ensure our data can be easily integrated.”

Healey refuted Belcher’s claim that data was easily integrated, claiming the lack of integration remained one of the industry’s biggest data challenges, and Belcher noted technical knowledge was key.

“People who understand the data model upfront in the platforms they create will be better placed to integrate data quickly and it will be easier to action,” Belcher said.



11:30 - Fireside chat

Evaluating the state of fixed income markets: How is technology on the buy side, sell side and exchanges advancing to suit this complex landscape and what can you do to adapt?

Moderator:
Elizabeth Callaghan, Director, Secondary Markets - Market Practice and Regulatory Policy, ICMA
Panel:
Juan Landazabal, Global Head of Trading, GAM International Management
Lee Bartholomew, Head of Fixed Income Product R&D, Eurex
Mauricio Sada-Paz, Global Head of eFICC Product and Distribution, Barclays Investment Bank

Concerns mount over stalled connectivity and price distribution

By fidesk - October 9, 2019

Fixed income traders still lack the direct connectivity they need to protect pricing and control data flow, according to leading buy-side stakeholders.

Speaking at the Fixed Income Leaders’ Summit, Juan Landazabal, global head of trading at GAM International, said innovation that would better link the buy and sell sides had been severely stunted, highlighting the ‘zero or very little progress’ made in terms of effective distribution of axes.

“We need more direct connectivity with the sell side, or at least with our key counterparts,” he said. “Certain platforms have tried to do something, but the direct connectivity is not there.”

Landazabal also criticised the new issue market describing it as ‘very old school in its way’ and said the lack of technological innovation affected pricing. He said a lack of direct connectivity meant that the buy side was unable to control prices or data.

“One reason for wanting DC is clearly cost and to get sharper pricing but another is data and being able to control information and not needing to use an in intermediary or platform.”

Mauricio Sada-Paz, global head of eFICC distribution and product at Barclays, said the limited direct connectivity was also a challenge for the sell side, arguing that the FX market was far ahead of its fixed income counterparts when it came to direct connectivity.

“For banks like ourselves it is always hard to connect with every single client like we can with FX. We need a utility in the middle where you can connect and distribute prices to others,” he said. “The buy side is concerned about the future market structure because the incumbent venues will have a lot of pricing power and that will hurt the price that they will get their clients.”



MAXIMIZING LIQUIDITY IN LESS LIQUID PRODUCTS



13:40 - 360 Perspective

Embracing eTrading in EM: What are the top trends shaping market structure and how will this impact your interactions both local and international markets?

Moderator:
Nick Cox Independent Expert, Former Global Head of Fixed Income Trading J.P. Morgan Asset Management
Panel:
Jatin Vara Head of International Trading & Global Head of Emerging Markets Trading BlackRock
Craig McLeod Head of Emerging Markets Product Management MarketAxesst

CSDR warning for EM bond liquidity

By fidesk - October 9, 2019

The mandatory buy-in regime that will be introduced next year by Europe’s Central Securities Depositories Regulation (CSDR) could have negative consequences in the less-liquid asset classes in the emerging markets universe, FILS delegates were warned.

“CSDR could seriously impact how these markets work,” said Jatin Vara, head of international trading and global head of emerging markets trading at BlackRock.

Scheduled for introduction in Q3 2020, the mandatory buy-in regime will impose incremental fines on firms that cannot resolve settlement fails within a strict timeframe. Industry bodies have flagged concerns over the scheme, but Vara pointed out particular challenges in those sectors of the emerging markets where bonds are priced before they are sourced. “Entry and exit costs in those assets will change,” he said.

Speaking in a session highlighting the growth of electronic trading in the emerging markets, Vara distinguished between credit – where trading is still largely relationship-based, with liquidity concentrated with a handful of providers – and rates, where automated workflows have gained a stronger hold. Vara cited the dispersal of liquidity to regional banks as a key reason for using trading platforms to trade rates, noting the resource required to onboard a large and diverse range of banks.

In a later session, this approach was qualified by speakers who maintained the importance of direct dialogue with local sell-side counterparties. “Powerful information is still held locally. It’s valuable to have deep local relationships,” said Chris Perryman, head of trading, portfolio manager, EM specialist, Pinebridge Investments.

Further, Perryman insisted traders had to “get over the mental block” presented by the dearth of data in emerging markets compared with more liquid sectors. Traders have to use their skills and resources to identify scenarios in which they are willing to take risks, or they will fail to grasp opportunities. “It’s not perfect, but the information is there,” he said.



14:10 - Fireside Chat

China bonds going mainstream: How can you leverage the diversification in market structure in the onshore and offshore bond market to capitalize on this new access

Moderator:
Nick Cox Independent Expert, Former Global Head of Fixed Income Trading J.P. Morgan Asset Management
Panel:
Florence M H Lee Head of China Sales and Business Development - EMEA HSBC Securities Services

China bonds on track despite delay

By fidesk - October 9, 2019

The recent decision by FTSE Russell not to include Chinese bonds in its World Government Bond Index and other benchmarks will not have a significant impact on the opening up of China’s domestic bond markets to international investors, FILS delegates were told yesterday.

Florence Lee, head of China sales and business development for the EMEA region at HSBC Securities, said that FTSE Russell’s decision to keep China on its watchlist would delay the inclusion process by perhaps only six or 12 months, suggesting the index provider wanted more time to consider the liquidity impact of recent reforms.

“Index inclusion is a key driver for any emerging market and China is no exception,” she said, noting the inclusion of Chinese bonds earlier this year in two other bond indices – the Bloomberg Barclays Global Aggregate bond index and JP Morgan’s Government Bond Index Emerging Markets suite. “It’s only a timing issue, we think,” she said, referring to the FTSE Russell decision.

In the meantime, she said, the opening up of China’s bond markets is continuing apace with international investors and local regulators adapting to each other step by step.

Asset managers mainly access China via BondConnect, which is quick to set up and does not require a mainland presence. At present, inflows are weighted 60:40 in favour of CIBM Direct, estimated Lee. “But I think this will eventually switch.”



ADAPTING TO A NEW ERA OF DERIVATIVES TRADING



14:20 - Fireside Chat

Assessing the progress towards phasing out LIBOR by 2021: What are the new indices and alternatives available and how does this differ by jurisdiction?

Moderator:
Mark Croxon Financial Regulation and Market Structure Consultant Thames Bench Limited
Panel: Pieter van Vredenburch Principal Market Alpha
Ross Barrett Senior Policy Adviser The Investment Association
Philip Whitehurst Head of Service Development LCH

LIBOR risks growing

By fidesk - October 9, 2019

Philip Whitehurst, head of service development at clearing house LCH has warned delegates at the Fixed Income Leaders Summit to take FCA warnings seriously regarding the end of Libor as a benchmark in 2021 deadline.

He referred to chief executive Andrew Bailey’s July speech that firms ‘must be able to run their business without LIBOR by end of 2021’ or risk serious consequences.

“The regulator has helped the private sector understand the significance and the severity of the risks that are based on vulnerable IBORs. They have galvanised activity.”

He also noted that although some of the buy side felt that their ‘hair had been set on fire’ after Bailey’s speech, there must be ‘periodic moments where the importance of the issue is stressed’.

Ross Barrett, senior policy adviser at The Investment Association, said the FCA had devoted attention to the sell side, but said that if the buy side did not start moving away from Libor, oversight would increase.

“There are concerns about whether [the buy side] will get there, but the regulator can get tougher. If the dial doesn’t turn towards people switching over to [other rates] then the FCA will get a lot tougher”

However, he said that since there is no single agreed rate nor any clear guidance from financial regulators around the world about how best to proceed, the transitions were hard to execute.

Pieter van Vredenburch, principal at Market Alpha, agreed adding that in some cases all parties in a trade would need to agree on alternate to Libor, and called on regulators to provide more guidance.

“The regulators have to get a list together of what they need to do otherwise they are opening it all up for an amount of litigation that will be off the chart”


NEW FRONTIERS IN BOND TRADING



14:50 - Oxford Style Debate

TRUE OR FALSE: This conference believes bond trading will evolve and become low-touch and algo driven similar to other asset classes

Moderator:
David Bullen Director Bullen Management
Panel:
Yann Couellan Head of Fixed Income Execution BNP Paribas Asset Management
Mike Poole Fixed Income Dealing Manager Jupiter Asset Management
Bart Smith Co-Head, ETF Group Susquehanna International Group
David Walker Head of Fixed Income Dealing M&G Investments

The mob turns against equitisation

By fidesk - October 9, 2019

A fierce defence of bond markets against ‘equitisation’ was mounted by Mike Poole, fixed income dealing manager at Jupiter Asset Management and David Walker, head of Fixed Income Dealing at M&G Investments, in a lively discussion with Bart Smith, co-head, ETF Group at Susquehanna International Group and Brett Olson, managing director and Head of Fixed Income iShares in EMEA for BlackRock.

In an Oxford style debate, ‘This conference believes bond trading will evolve and become low-touch and algo driven similar to other asset classes’Poole made his opening case by saying, “We all need to stop being told what we should be doing and start thinking about what we could be doing.”

Smith countered this, arguing that, “No one has said to me ‘How do I get more out of my high touch relationships’.”

Walker explained that he was investing in people to increase the value of his desk, and said that was a direct reaction to changes that others sought to manage with technology.
“We have upscaled our dealing desk; there is a fragmentation of liquidity and I wanted to have a dealer that was a specialist. To have someone looking after EM, after high yield, after sterling IG, so that they have the time to speak to the street,” he said.

He added that having assessed portfolio trading his team tested it and outperformed it, but said it and electronic execution tools were “very interesting” nevertheless.

Olson ably defended the panel from audience questions, the first of which suggested the debate was akin to bookshop owners arguing against Amazon – “Bookshops still exist” – and the second as to why anyone would invest in either of their products in a low-to-negative rate environment – “Cash isn’t necessarily free to hold.”

Nevertheless the audience voted 56% against the motion, awarding victory to Poole and Walker.