The future is electronic
01 July 2020
Buy-side entities have had to adapt to radical changes coming from financial market evolution and, now, global pandemics. GLMX’s Sal Giglio explores the issues
Image: DR MANAGER/shutterstock.com
The first few months of 2020 may seem like a time in our lives that we will soon want to forget. However, it may prove to be the turning point of work as we know it. During this time, Europe and the Americas experienced massive upheaval with turmoil being felt in our home and our work lives. In fact, the two seemingly converged overnight.
The speed at which COVID-19 spread from continent to continent caught our collective medical community and local and national governments off guard. They were not prepared to act as quickly as necessary to contain the initial spread of the novel coronavirus. Phrases such as “flatten the curve”, “social distancing” and “shelter in place” entered the public lexicon. The financial system convulsed as the prospect of a recession, or worse, lay on the horizon. The Dow Jones Industrial Average fell over 30 percent in the first few weeks of March and the US treasury market experienced an unprecedented flight to safety with the 10-year note and 30-year bond touching all-time low yields of .318 and .702, respectively.
Fortunately, the past two decades have not only taught the financial community how to battle a crisis but also to prepare for one as well. Periodic testing of disaster recovery centres is the norm. Although working from home (WFH) en-masse was an option in most business continuity plans, it clearly was not a top or well-tested option. In our discussions with market participants, the transition to working from home was surprisingly smooth. Aside from not having the ideal monitor set up and maybe needing to upgrade the internet speed, financial institutions were able to transition the majority of their staffs to a productive remote workspace. Workers can access their workplace desktop computer remotely through a virtual private network (VPN), which is a cost-effective way to provide secure access to private systems from external locations over a less secure network, such as the internet. With this setup, compliance has the ability to audit activity as if the employee was sitting at their desk.
Whether the new working arrangement is referred to as working from home, working remotely, telecommuting, geographically neutral, home-shored or my favourite, ROWE – results-only work environment, the arrangement that existed prior to March will not likely return anytime soon. In fact, CEOs from major technology and financial companies such as Facebook, Google, Twitter, American Express and Nationwide are among companies allowing their employees to work from home for the foreseeable future. J.P. Morgan recently announced that offices will only be staffed at half their capacity when the lockdown ends. While other companies are advising their employees to WFH unless they have a strong business reason to be in the office. Although technology companies may be better situated to a WFH environment, financial companies have shown the aptitude to support a flexible WFH protocol.
WFH prevents the immediate return to pre-crisis work scenarios that expose us to crowded trains, buses, subways, elevators and office buildings that arise once states and cities allow firms to reopen. If the new arrangement is to become a realistic option, it needs to be as productive and secure as working from an office. Tools should be made available to be successful at home. For the longest time, executing a trade from anywhere but the trading floor was prohibited and possibly would lead to termination. But when the global pandemic hit, the physical trading floor became virtual and traders needed to find new ways to communicate effectively without straying too far from the everyday processes to which they were accustomed. While Zoom, Webex and virtual turrets have helped bridge the communication gap and keep everyone engaged throughout the day, other tools are needed. Tools that help streamline workflow and automate manual processes are essential to increase efficiency and mitigate trade entry errors, thus improving productivity. Electronic trading is a tool that provides these needed benefits and more.
Why electronic?
The repo market is following the natural electronification progression. Voice (IM/email) interaction is often followed initially by dealer-to-dealer (D2D) electronic trading, then dealer-to-customer (D2C) workflow is captured. Dealer-to-dealer electronic trading and the requisite post trade straight-through-processing has been a key component of repo trading for more than 15 years. Many benefits to electronic trading are well known since electronic trading platforms (ETP) have existed for more than five decades with Instinet (formally known as Institutional Network Corp) going live in 1969. However, the growth of ETPs did not really begin until the mid-1980s. Electronic trading for fixed income products started in the late 1990s and has become a large part of the market structure. According to the 2016 Bank of International Settlements report ‘Electronic Trading in the Fixed Income Markets’, 70 percent of US treasuries, 60 percent of European government bonds and 40 percent of investment-grade corporate bonds are traded electronically.
The desire to adopt electronic trading in repo is no different than in any other market. The major benefit of technology is the increase in efficiency of a business process. Technology can streamline the search for collateral or cash, thus improving the speed of execution and resulting in cost savings. Trading desks are constantly struggling to manage the mandate to grow their business with limited headcount.
Handling these inquiries over the phone, email or chat and then manually entering the trade details into a position management system is time-consuming. This is often followed by sending trade details confirmations to the clients. Naturally, this process slows down the time it takes to respond to clients. Operational efficiencies can be achieved when the trading platform is integrated with the user’s technology, easing the manual burden of the salesperson or trader and their back offices. Technology allows a business to scale. A trading platform is agnostic to whether you are trading from the attic or your garage or a midtown high-rise made of glass and steel. Digitising the workflow also provides comprehensive data capture, which is essential for regulatory reporting and proving best execution.
But, why has it taken so long for the repo market to adopt electronic trading for dealer-to-client flow? Perhaps the trading protocols were the problem. Click-to-trade (CTT) or central limit order book (CLOB) trading, prevalent in the dealer-to-dealer repo market, are not practical for D2C flow since the central counterparty model does not easily apply to the buy-side of the market. Thus, balance sheet continues to be a binding constraint in the D2C space. Hence, technology had to be developed to support traditional D2C request-for-quote (RFQ) trading protocols. That is where GLMX can help.
How can GLMX help?
As an RFQ-driven, buy-side to dealer, securities finance trading platform that provides multiple pre- and post-trade connectivity options, GLMX is able to streamline existing workflows and automate previously manual processes which allow users to seamlessly negotiate and execute trades with their counterparties. GLMX technology provides functionality that supports traditional trading protocols between buy-side clients and dealers which is represented by the advanced D2C functionality supported on the platform such as package/nettable trades, open trades, cleared repo, triparty, extendable, bid/offer runs, locates and trade life-cycle management.
All asset classes, sovereigns to credit and structured products, and all currencies can be transacted on the GLMX platform. Advanced data capture helps traders make smarter trading decisions and supports regulatory reporting. In fact, GLMX provides full support for reporting under the Securities Financing Transaction Regulation.
With close to 20 dealers using GLMX, the buy-side, represented by some of the largest global asset managers, hedge funds, insurance companies, money market funds and central banks, has access to their major liquidity providers. In fact, the pipeline of new buy-side accounts and dealers is the largest it has ever been and March was a record month for volumes, daily balance and transactions on the platform.
Since GLMX is web-based and offers a variety of integration options, the platform is accessible by all sizes and types of institutions. Advanced application programming interface-connectivity is available or if users prefer, trade inquiries can be entered manually or via upload of a user format-defined spreadsheet. This is extremely helpful for users that want to avail themselves of some of the benefits of electronic trading now but may not have available internal technology support for some time or firms that want to enter into a proof of concept before fully committing. The user will be able to export the trade information into a user format-defined spreadsheet so they can batch upload into their OMS. Connectivity through third-party OMS/EMS/PMS is also available.
GLMX is known for the ability to identify and to quickly develop custom client-driven solutions. The platform offers comprehensive and intuitive technology that will continue to grow with the changing trading environment. Clearly, what will remain from this time is that some form of remote working will be part of the new way companies execute their business. In that scenario, the streamlined workflows provided by GLMX will be essential to achieve successful ROWE.
The speed at which COVID-19 spread from continent to continent caught our collective medical community and local and national governments off guard. They were not prepared to act as quickly as necessary to contain the initial spread of the novel coronavirus. Phrases such as “flatten the curve”, “social distancing” and “shelter in place” entered the public lexicon. The financial system convulsed as the prospect of a recession, or worse, lay on the horizon. The Dow Jones Industrial Average fell over 30 percent in the first few weeks of March and the US treasury market experienced an unprecedented flight to safety with the 10-year note and 30-year bond touching all-time low yields of .318 and .702, respectively.
Fortunately, the past two decades have not only taught the financial community how to battle a crisis but also to prepare for one as well. Periodic testing of disaster recovery centres is the norm. Although working from home (WFH) en-masse was an option in most business continuity plans, it clearly was not a top or well-tested option. In our discussions with market participants, the transition to working from home was surprisingly smooth. Aside from not having the ideal monitor set up and maybe needing to upgrade the internet speed, financial institutions were able to transition the majority of their staffs to a productive remote workspace. Workers can access their workplace desktop computer remotely through a virtual private network (VPN), which is a cost-effective way to provide secure access to private systems from external locations over a less secure network, such as the internet. With this setup, compliance has the ability to audit activity as if the employee was sitting at their desk.
Whether the new working arrangement is referred to as working from home, working remotely, telecommuting, geographically neutral, home-shored or my favourite, ROWE – results-only work environment, the arrangement that existed prior to March will not likely return anytime soon. In fact, CEOs from major technology and financial companies such as Facebook, Google, Twitter, American Express and Nationwide are among companies allowing their employees to work from home for the foreseeable future. J.P. Morgan recently announced that offices will only be staffed at half their capacity when the lockdown ends. While other companies are advising their employees to WFH unless they have a strong business reason to be in the office. Although technology companies may be better situated to a WFH environment, financial companies have shown the aptitude to support a flexible WFH protocol.
WFH prevents the immediate return to pre-crisis work scenarios that expose us to crowded trains, buses, subways, elevators and office buildings that arise once states and cities allow firms to reopen. If the new arrangement is to become a realistic option, it needs to be as productive and secure as working from an office. Tools should be made available to be successful at home. For the longest time, executing a trade from anywhere but the trading floor was prohibited and possibly would lead to termination. But when the global pandemic hit, the physical trading floor became virtual and traders needed to find new ways to communicate effectively without straying too far from the everyday processes to which they were accustomed. While Zoom, Webex and virtual turrets have helped bridge the communication gap and keep everyone engaged throughout the day, other tools are needed. Tools that help streamline workflow and automate manual processes are essential to increase efficiency and mitigate trade entry errors, thus improving productivity. Electronic trading is a tool that provides these needed benefits and more.
Why electronic?
The repo market is following the natural electronification progression. Voice (IM/email) interaction is often followed initially by dealer-to-dealer (D2D) electronic trading, then dealer-to-customer (D2C) workflow is captured. Dealer-to-dealer electronic trading and the requisite post trade straight-through-processing has been a key component of repo trading for more than 15 years. Many benefits to electronic trading are well known since electronic trading platforms (ETP) have existed for more than five decades with Instinet (formally known as Institutional Network Corp) going live in 1969. However, the growth of ETPs did not really begin until the mid-1980s. Electronic trading for fixed income products started in the late 1990s and has become a large part of the market structure. According to the 2016 Bank of International Settlements report ‘Electronic Trading in the Fixed Income Markets’, 70 percent of US treasuries, 60 percent of European government bonds and 40 percent of investment-grade corporate bonds are traded electronically.
The desire to adopt electronic trading in repo is no different than in any other market. The major benefit of technology is the increase in efficiency of a business process. Technology can streamline the search for collateral or cash, thus improving the speed of execution and resulting in cost savings. Trading desks are constantly struggling to manage the mandate to grow their business with limited headcount.
Handling these inquiries over the phone, email or chat and then manually entering the trade details into a position management system is time-consuming. This is often followed by sending trade details confirmations to the clients. Naturally, this process slows down the time it takes to respond to clients. Operational efficiencies can be achieved when the trading platform is integrated with the user’s technology, easing the manual burden of the salesperson or trader and their back offices. Technology allows a business to scale. A trading platform is agnostic to whether you are trading from the attic or your garage or a midtown high-rise made of glass and steel. Digitising the workflow also provides comprehensive data capture, which is essential for regulatory reporting and proving best execution.
But, why has it taken so long for the repo market to adopt electronic trading for dealer-to-client flow? Perhaps the trading protocols were the problem. Click-to-trade (CTT) or central limit order book (CLOB) trading, prevalent in the dealer-to-dealer repo market, are not practical for D2C flow since the central counterparty model does not easily apply to the buy-side of the market. Thus, balance sheet continues to be a binding constraint in the D2C space. Hence, technology had to be developed to support traditional D2C request-for-quote (RFQ) trading protocols. That is where GLMX can help.
How can GLMX help?
As an RFQ-driven, buy-side to dealer, securities finance trading platform that provides multiple pre- and post-trade connectivity options, GLMX is able to streamline existing workflows and automate previously manual processes which allow users to seamlessly negotiate and execute trades with their counterparties. GLMX technology provides functionality that supports traditional trading protocols between buy-side clients and dealers which is represented by the advanced D2C functionality supported on the platform such as package/nettable trades, open trades, cleared repo, triparty, extendable, bid/offer runs, locates and trade life-cycle management.
All asset classes, sovereigns to credit and structured products, and all currencies can be transacted on the GLMX platform. Advanced data capture helps traders make smarter trading decisions and supports regulatory reporting. In fact, GLMX provides full support for reporting under the Securities Financing Transaction Regulation.
With close to 20 dealers using GLMX, the buy-side, represented by some of the largest global asset managers, hedge funds, insurance companies, money market funds and central banks, has access to their major liquidity providers. In fact, the pipeline of new buy-side accounts and dealers is the largest it has ever been and March was a record month for volumes, daily balance and transactions on the platform.
Since GLMX is web-based and offers a variety of integration options, the platform is accessible by all sizes and types of institutions. Advanced application programming interface-connectivity is available or if users prefer, trade inquiries can be entered manually or via upload of a user format-defined spreadsheet. This is extremely helpful for users that want to avail themselves of some of the benefits of electronic trading now but may not have available internal technology support for some time or firms that want to enter into a proof of concept before fully committing. The user will be able to export the trade information into a user format-defined spreadsheet so they can batch upload into their OMS. Connectivity through third-party OMS/EMS/PMS is also available.
GLMX is known for the ability to identify and to quickly develop custom client-driven solutions. The platform offers comprehensive and intuitive technology that will continue to grow with the changing trading environment. Clearly, what will remain from this time is that some form of remote working will be part of the new way companies execute their business. In that scenario, the streamlined workflows provided by GLMX will be essential to achieve successful ROWE.
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