As discussed in Parts I and Part II, access to liquidity is currently being hindered by the overwhelming amounts of data available on fixed income electronic trading platforms, in messages and from other sources that are largely unstructured and non-customized. Rather than releasing the floodgates of this data, market participants have instead chosen to limit their access, as they have found it impossible to manage the large, fragmented data sources manually. While electronification has largely been spoken about in terms of transaction protocols, we think that the firms that manage this information challenge more efficiently will have a large competitive advantage.
A Buyside Firm Rises to the Challenge
Instead of waiting for someone else to create a solution, Alliance Bernstein has been written up recently for utilizing one of their in-house solutions to manage market data. According to the article, "The New York-based asset manager has built a proprietary system – ALFA (Automated Liquidity Filtering and Analytics) – to aggregate information on the bond market, giving it an unprecedented level of pre-trade transparency."
As the article continues...."the technology has allowed AB to slash execution costs on some trades by as much as 60% over the past year, while improving the speed and efficiency of its trading." [Emphasis is ours.]
Jim Switzer, Head of AB Trading, reports that “We see the difference,” he says. “It's alpha generating. It's helping us to become more efficient, to run portfolios faster and smarter." This initiative marks an important shift from the current state of fixed income trading: AB is now able to access any available liquidity in the market, more quickly than its peers by having liquidity intelligently and proactively routed to them.
Our own Solution
Much like AB's solution, FixtHub aggregates, distills and routes market liquidity to the appropriate counterparty via a web-based solution for Corporates, Securitized Products (RMBS/ABS/CMBS) and Municipals. This solution helps users find opportunities in the large amounts of disparate information and it does so in real time. So, rather than decreasing the number of dealers that send runs or limiting the number of transaction platform with connectivity, the FixtHub application can show you every scrap of liquidity in the market intelligently (i.e., that you care about) and in real time, no matter where and for how long it exists. So, instead of being limited by the amount of data a person can consume, firms that leverage our technology to automate manual workflows will be able to invest and trade much quicker and with a better effect.
Increasingly technology will revolutionize how fixed income participants interact with large amounts of data in the future. Currently, fixed income traders must proactively search for data that intersects with their needs. However, to be truly valuable, the technology that works best is one that pushes the relevant information to the right participants at the right time. The firms that utilize technology to leverage all data points in the market in real time will have a massive competitive advantage over others.