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Transcript for Dealer Wallet 101: Getting The Most From Your Sell Side Counterparts

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[MUSIC]

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Hello and welcome to CMXtra, the Capital Markets Exchange podcast. Yes, we are back

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after a ludicrously, yes, I'm going to say

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ludicrously successful in-person event in London

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back in June. We're back on the podcast with more

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capital markets, conversations, insights and later

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on some intel on the next in-person CMX event. So

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stay tuned. On the podcast over the next few months,

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we're going to be engaging in conversation with

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more experts from throughout the community on a

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diverse range of topics. And we're lining up some

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really, really interesting stuff. But if there is

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something you'd like us to cover or somebody

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you'd like us to speak to, then well, do let us know.

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Today, well, we're welcoming back two guests from

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the in-person CMX event before the summer to share

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their vast insights and experience on dealer

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wallet share and getting the most from sell side

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partners. And the context here is what some

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would see as the proliferation of new counterparties

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offering liquidity in the market and

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different types of counterparties offering different

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opportunities versus, for example, tier one

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banks, agency brokers and so on. Meanwhile,

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cost pressures on the buy side are at least in

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some shops, reducing the size and makeup of dealer

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panels across different asset classes. Well, here

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to share the wealth of their experiences and offer

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up some practical advice, whichever side of the

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desk you sit, please welcome senior fixed income

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trader at Aberdeen, Owen O'Reilly. Hello, Owen.

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Good to see you again. Hi there. Good to be back.

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Thanks. And former sell side director of market

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structure at one of the major sell side firms and

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cross asset market structure and e-trading expert

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as well as co-chair of Fix EMEA, Matt Coop. Hello,

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Matt. Hey, David. Thanks for having me. Matt,

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that's a long job title in a nutshell. You've been

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around for a while and you've got fingers in

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lots of pies. Is that the summary? I'd add market

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structure geek to the title as well. Okay. Yeah.

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We're very happy to have geeks and nerds in job

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titles here on the show. Thank you both for

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joining us today. So as we touched on in the

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setup there a moment ago, there certainly

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is pressure on the buy side to reduce their

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counterparty panels. Owen, come to you first

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of all on this. What are some of the reasons

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behind this and what practically does it mean?

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What kind of challenges does that present you with?

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Well, there is fee compression in the

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industry generally, which has led to cost cutting

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in our peers. Broker panels in themselves isn't a huge cost center, but there is

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significant resources needed in terms of

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regulatory oversight and just setting up and

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maintaining lines. So the trajectory is

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definitely to reduce, not increase the panels. Now, we also

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have to bear in mind our ability to service

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our clients. So we don't want that liquidity

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to be applied to our clients to decrease as

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a result of that. So we do use other means to

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provide liquidity such as platforms. If we

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remove lines from account to party, we still

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usually have the option to trade with them, but

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via an e-platform such as Market Access or TradeWeb,

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which in theory doesn't decrease our ability to provide liquidity.

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Yeah. We'll certainly be coming on to platforms

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later on today. Matt, from your side, are there

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any similar pressures that the sell side is

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facing at the moment in terms of how things

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are changing, how things are evolving in this

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area? Yeah, definitely. I'd agree with Owen's

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comments. When you look at the sell side, there are cost constraints and pressures,

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cost of income questions are continually asked across the sell side environment.

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You've got to look at the maintenance and the

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regulatory costs for onboarding and continue to

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maintain. Even if you're doing it through

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platform, you are onboarding that client as a counterparty.

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It might be more riskless if it's going

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through a clearinghouse, if you're talking about OTC

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derivatives, but there is still an onboarding

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requirement in the fixed income world with a

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direct counterparty. There are high costs to

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that in terms of the AML and KYC. When you're

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onboarding that relationship with that cost,

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that cost also, we are in a financial markets

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environment. We need to make profits from that

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as well. That is a consideration, I think, on both

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sides. Owen, how are panels changing then? We're talking about a change in context,

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changing market, changing environment in

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which you guys are operating. How are your panels

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changing? Maybe we said it up earlier,

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different types of liquidity providers. What does that

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ultimately mean for WalletShare? Well, I suppose

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the new entrants would be the algorithm traders,

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such as Jane Street and Flow traders.

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Typically, they are E-trading only. That's become an

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increasingly larger slice of our business.

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There's numerous reasons for that. I'd say

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regulation is pushing us in that direction

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generally. They often see our flow. Even if

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they don't win our flow on those platforms,

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they do provide valuable information. They're very

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quick to price. For me, they're a valuable

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addition to our panels. I think I agree with

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that. If you look at the growth of what you've

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seen in terms of the proprietary trading firms

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and the liquidity they're providing for the

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market, you've seen huge growth across a number

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of the product types. I think, critically, there's

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a lot of value in the liquidity that they provide.

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But, critically, there's a concede

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consideration, as Owen said, is a lot of this is electronic

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only. Now, I also understand that these guys

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are also providing OTC liquidity. But, critically,

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they do not have the same balance sheets as

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traditional banks. When you're trying to shift

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significant risk, there needs to be a

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consideration in terms of what's coming. It's not to say that

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they can't, because if you look at the size of

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some portfolio trades that go through in credit,

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they are huge in notional value, but not necessarily in terms of risk that's being

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done in terms of the whole portfolio. But there's

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a consideration there that needs to be looked at.

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But, critically, Owen always has best ex at the

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back of his mind in terms of how he's thinking

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about this on a trade, but also on an

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aggregate level. Yeah, that's true. So, we wouldn't be

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showing them large risk transfer trade. We

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would do the banks. But, certainly, on the smaller

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platform trades, they are very competitive.

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And, Owen, the space in which you operate,

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correct me if I'm wrong here, but

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particularly in emerging markets, are you finding that

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landscape changing as well in terms of the

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variety and the number of maybe mainstream,

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but also some more of the niche players there that you might want to engage with?

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Yeah, we absolutely need to keep our doors open

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to these guys because of the nature of what we're

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trading. So, some markets aren't as well covered

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by the banks, in which case there is that local

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specialized knowledge from the regional

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players, say, that we need to be able to tap into. So,

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we can't just stick to trading with the top

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tier bull's bracket banks. We need to be able to

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have lines of these guys receive color and

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relevant access from them, which is valuable

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to our clients. Yeah, yeah. I completely agree

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with that because when you look at it, it goes

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back to variety and the different products

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that you're trading. There's a lot of time

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where you can get standard coverage from

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the banks, but there's times when you need,

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if you're trading local currency, you need

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to have that local environment where you're

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not going to be putting a huge amount of flow,

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but you need to be able to access that liquidity.

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And it's critical to be able to have that

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panel. That's true. Yeah, particularly in frontier

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markets, most of the onshore liquidity comes

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from pension funds and the agency brokers in those

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markets tend to have maybe worked for the

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pension funds or at least have a good relationship with

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them. So, that's kind of vital to be able to

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move risk in those markets to have that source of

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liquidity. Does that therefore mean, I mean,

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I don't know how many different providers that

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you have on your panel, but does that mean that

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you, if you are operating in those markets and

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you do need to look to those niche players for

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particular value, does that mean that you would

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necessarily need to have a longer panel, a

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larger panel in order to satiate all of those

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different needs? And does that prevent you

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present you with a different challenge then?

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Not necessarily. I think there's enough room,

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usually on a panel for both. It kind of just

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tends to grow organically. So, you kind of

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need to be careful about adding brokers, you know,

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infinitely. Typically at the moment, I think we

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probably have about 50 lines in place of fixed

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income. And we don't like that could probably be

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reduced. And typically, if you want to open a new

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line, we'll need to close an existing one.

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Right, no room at the inn. Matt, is that common

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from your view on the other side as well, that

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every now and then there does come this cull when

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providers just get right, lopped off and it's

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time for you to try and re-nurture that relationship

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or go looking elsewhere? I think there's

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different ways of looking at this. And I'm trying not to

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sort of just look at it as a standard bulge

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bracket view. As a bulge bracket, you know,

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that there's going to be different

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variations in terms of when you are building product

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specialism and liquidity provision and areas

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where you might be slightly weaker because you cannot

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do everything and be amazing at everything.

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It's just that you can't. The environment,

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the capital requirements around that is just

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impossible. So, there are points in time where,

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you know, as a bulge bracket, you might not be

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on the list or you might not necessarily be there.

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And it's also about having a frank and

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open discussion with your clients to say, yep,

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we're not there at the moment. This is where our

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focus is. This is how we can help you. This is how

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we can structure our arrangement. I think,

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you know, when you get out of the top seven,

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you know, bulge bracket firms, and correct me if

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I'm wrong here, but that's where you start to see

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a more difficult conversation because, you know,

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you're going to link a lot of your flow towards

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those top seven. And then when you're in that

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awkward bucket, what are you actually doing? So,

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there's kind of a bit of a push there in

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terms of that rankings and where that evolves.

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Yeah, it's kind of an awkward position, that kind

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of mid tier because you are competing with the top

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tier, you're using balance sheet, but then there

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is a cost to that. And then the lower tier would be

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an agency model where there's no risk involved. So,

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the kind of mid tier guys, I think, really need to

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specialise and not try to do everything like

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the top tier guys might do. Let's come on to the

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relationship nurturing part of that in a moment.

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Owen, you can't manage something until you measure

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it. How are you measuring, quantifying

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counterparty relationships and making sure that you've got

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consistency across those metrics,

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particularly when you're working across developed and the

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emerging markets that you've got more than a

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few toes in? Yeah, I mean, the most important

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statistic would be just volume of trading we're

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doing. And that's certainly what the banks are

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most interested in. We have a biannual review

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process where we go through all the asset classes

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for the tier one banks. And within the asset

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class, they will drill down into where you're

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seeing flow, where you're not seeing flow

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versus your peers. So, we do provide quite detailed

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information. We're happy to do that. It's a

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mutually beneficial relationship. There is,

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I think, from my point of view, the soft skills

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from the salesperson is important as well. I mean,

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there's a lot of noise in the market with

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Bloomberg IB, emails. It's very difficult sometimes to

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filter that into usable information. So, we

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rely on our sales to then provide us relevant

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colouring access on bonds that they know we're

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involved in. And also to, in essence, work for

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us as a client as much as they do for their own

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desks, because we're stakeholders in that process

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as well. So, we need them to be able to push

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their traders to give us the pricing we need

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to maintain those volumes. Matt, when we spoke in the summer on this at the CMX

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event, you weren't on this panel, but something

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we did touch briefly on in that session was about

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dealer reviews. Owen, you shared some

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thoughts on that. But Matt, I'm keen to understand,

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you know, from your side of the dealer reviews,

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when they don't work, when maybe they don't feel

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as though they're as constructive as they might

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be, when there's more value that could be got from

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them, if only this thing were to happen, what

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would this thing be for you? I think they're

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having sat on quite a few dealer reviews

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in my time across a number of asset classes.

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I think the key thing is actually interaction.

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You can have some information-rich dealer reviews,

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I think critically and going to one of Owen's

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points, information about what your trading flows

01:13:55,708 → 01:13:59,000

are, but critically, not just about trading

01:13:59,000 → 01:14:02,500

notional, but trading risk. And really from a

01:14:02,500 → 01:14:04,250

client's perspective, being able to go, what have

01:14:04,250 → 01:14:07,166

we done in risk? What have you done? Not without

01:14:07,166 → 01:14:09,916

trying to give out any sort of secret source or

01:14:09,916 → 01:14:13,375

any proprietary information, but to really understand

01:14:13,375 → 01:14:15,333

what's happening, because when you look at how

01:14:15,333 → 01:14:17,000

people are building their metrics at the moment,

01:14:17,500 → 01:14:19,458

it's generally off all the platform

01:14:19,458 → 01:14:23,416

information. Now, if we take a look at sort of like OTC

01:14:23,458 → 01:14:26,375

derivatives as an example, one thing that you

01:14:26,375 → 01:14:28,500

could find on platform where you could say you're doing

01:14:28,666 → 01:14:31,541

such a high notional volume is actually

01:14:31,541 → 01:14:33,500

compression trades, which are coming through and being put

01:14:33,500 → 01:14:35,541

through from the buy side. Now, these are

01:14:35,541 → 01:14:38,500

technically riskless. All they're doing is trying to optimize

01:14:38,500 → 01:14:40,541

the portfolio and to be able to manage that

01:14:40,541 → 01:14:42,416

accordingly. And there's no risk going through

01:14:42,458 → 01:14:44,958

in the market, but they have exceptionally high

01:14:44,958 → 01:14:48,375

notional value. Now, to me, that's a way of sort

01:14:48,375 → 01:14:51,583

of spoofing your stats, because I'm not really

01:14:51,583 → 01:14:54,000

doing any risk. I'm doing a trade that's not really

01:14:54,000 → 01:14:57,083

that much value to you or the market, but

01:14:57,083 → 01:14:59,458

aren't I looking amazing in the market share stats.

01:15:00,166 → 01:15:01,333

And critically to me, I think there's

01:15:01,333 → 01:15:03,041

information like that, which should be stripped out.

01:15:03,041 → 01:15:05,333

It's not relevant, right? Because as we

01:15:05,333 → 01:15:07,000

said all along, it's about that partnership,

01:15:07,708 → 01:15:12,291

that relevance in what's happening. I think also the other thing is the sell side.

01:15:13,208 → 01:15:14,708

When you have these dealer reviews, you go

01:15:14,708 → 01:15:16,708

into the room and you have your notepad open,

01:15:16,708 → 01:15:18,541

you know, scribbling down all the feedback.

01:15:18,791 → 01:15:21,333

I think also there needs to be a feedback,

01:15:21,708 → 01:15:23,958

an engagement with the buy sides because it's a

01:15:23,958 → 01:15:26,208

partnership. And sometimes it's having some of

01:15:26,208 → 01:15:29,500

those awkward conversations and also having the

01:15:29,500 → 01:15:32,583

right data. So some of the data I think we see in

01:15:32,583 → 01:15:34,500

the industry at the moment is really, really high

01:15:34,500 → 01:15:37,291

level, sometimes obsolete, sometimes out of date,

01:15:37,458 → 01:15:39,958

quite a lot of the time. And so I think where

01:15:39,958 → 01:15:42,166

we are in market structure, we should have a more

01:15:42,166 → 01:15:45,333

detailed review. We should be looking at E-Trading,

01:15:45,833 → 01:15:48,458

non-E-Trading OTC. Everyone's looking at E-Trading

01:15:48,458 → 01:15:50,541

stats, but actually we should look at OTC risk

01:15:50,541 → 01:15:52,458

and what's being done there. That's where everyone

01:15:52,583 → 01:15:55,458

wants to be able to win the trades as well. And

01:15:55,458 → 01:15:58,166

we should also be looking at statistics around,

01:15:58,166 → 01:16:00,375

okay, what percentage of my flow am I doing

01:16:00,375 → 01:16:02,625

through automated means? What percentages am

01:16:02,666 → 01:16:05,875

I actually leveraging different providers, you

01:16:05,875 → 01:16:07,500

know, and where does this come? Because if we

01:16:07,500 → 01:16:09,625

have that data in the right way, we can also have

01:16:09,625 → 01:16:11,833

a good market structure debate to look at what's

01:16:11,833 → 01:16:13,166

going to evolve in the right way for the end

01:16:13,166 → 01:16:17,708

investor. Well, seems to be very, very sensible

01:16:17,708 → 01:16:19,750

there. Partnerships, having the right data to

01:16:19,750 → 01:16:21,750

hand, making sure it's a two-way conversation

01:16:21,875 → 01:16:24,458

rather than just a one-way street. Owen,

01:16:24,458 → 01:16:26,333

anything to add to that to make sure that the dealer

01:16:26,375 → 01:16:30,000

reviews are as constructive, valuable as possible?

01:16:30,708 → 01:16:33,041

I would just add that if an issue is coming up in

01:16:33,041 → 01:16:37,041

a dealer review, it's probably too late. You need

01:16:37,041 → 01:16:40,000

to be having those conversations as they happen.

01:16:40,583 → 01:16:43,000

And that's something that we strive to do for

01:16:43,000 → 01:16:45,458

our important relationships. We essentially want to

01:16:45,458 → 01:16:47,416

nip any issues in the bud before they become

01:16:47,416 → 01:16:52,833

a block to trading and providing liquidity. So

01:16:53,208 → 01:16:56,833

it's really about maintaining the relationship on

01:16:56,833 → 01:16:58,958

an ongoing basis, sort of waiting to review to raise

01:16:59,000 → 01:17:02,625

issues. 100% agree. And it's like those

01:17:02,625 → 01:17:05,208

day-to-day issues they should be dealt with. And if you've

01:17:05,208 → 01:17:07,041

got a good sales guys, they're on with it. They're

01:17:07,041 → 01:17:08,916

trying to deal with it and actually sort that out.

01:17:09,333 → 01:17:10,916

And I think the dealer review is a lot more

01:17:10,916 → 01:17:13,375

thematic in terms of the relationship and how

01:17:13,375 → 01:17:16,000

you're progressing and how it needs to evolve

01:17:16,000 → 01:17:19,208

with quality to feedback, I think, on both sides.

01:17:19,833 → 01:17:24,125

To your point, David, I think it sounds really sensible and to look at the data,

01:17:24,666 → 01:17:27,416

but a lot of people are just trying to base

01:17:27,416 → 01:17:30,291

their information off electronic trading information

01:17:30,333 → 01:17:33,458

data and not including OTC information in it,

01:17:33,458 → 01:17:36,625

because that's not what I've got to hand and I

01:17:36,625 → 01:17:38,666

haven't got that data in a nice, easy formatted

01:17:38,666 → 01:17:42,500

way. And if we look at it, and as we've discussed

01:17:42,583 → 01:17:45,333

already, all the OTC, all the big risk trades,

01:17:45,333 → 01:17:47,500

they're done OTC. And these are the ones that we

01:17:47,541 → 01:17:50,291

need to be focusing on. So my personal view,

01:17:50,291 → 01:17:52,916

with my fix hat on, we need to be getting those OTC

01:17:53,000 → 01:17:55,875

data standards up to scratch. Just continuing

01:17:55,875 → 01:18:00,000

on the line of the relationships then, Owen,

01:18:00,625 → 01:18:03,125

like friendship groups, they say you have

01:18:03,125 → 01:18:05,458

friends for a season, friends for a reason,

01:18:05,708 → 01:18:11,833

and friends for life. Is that similar in your relationships with counterparties as

01:18:11,875 → 01:18:14,500

to you've got particular counterparties whose

01:18:14,500 → 01:18:18,125

relationships you nurture for the good times and

01:18:18,125 → 01:18:21,333

those maybe for the bad times? Yeah, absolutely.

01:18:21,583 → 01:18:24,541

And there's some relationships that, if you look

01:18:24,541 → 01:18:25,875

at it from a company point of view, they're much

01:18:25,875 → 01:18:29,166

more important than just the trading volumes. So

01:18:30,666 → 01:18:34,791

say if we see a tier one bank slip a bit in

01:18:34,791 → 01:18:39,541

our rankings, I think we're both incentivised to

01:18:39,625 → 01:18:41,166

try to get those numbers back up to where they

01:18:41,166 → 01:18:42,916

should be, because there's more than just that

01:18:43,625 → 01:18:45,791

relationship, the trading relationship at

01:18:45,791 → 01:18:53,416

stake. So to answer your question, yes. We do

01:18:54,500 → 01:18:56,500

try to nurture the relationship as much as we

01:18:56,500 → 01:19:00,541

can. And Matt, from your side, obviously, in times

01:19:00,583 → 01:19:03,041

past and so on, being on the receiving end of

01:19:03,041 → 01:19:06,500

those relationships, you understand where you are,

01:19:06,500 → 01:19:12,333

maybe in terms of that life or just for this particular moment in their journey?

01:19:12,666 → 01:19:16,291

You do. I think the key thing in terms of, as

01:19:16,291 → 01:19:19,416

a bold bracket, Salside Firm, you have so many

01:19:19,416 → 01:19:23,208

different types of counterparties. Particularly,

01:19:23,208 → 01:19:24,666

you just call out, look at the difference between

01:19:24,666 → 01:19:27,750

real money and hedge funds. And you can look at

01:19:27,750 → 01:19:30,166

how the profitability of that business can really

01:19:30,166 → 01:19:34,500

change and adjust. Understanding where you are

01:19:34,500 → 01:19:36,833

specifically with that business and understanding

01:19:36,916 → 01:19:38,791

what you've got, I think there's a real gap

01:19:38,791 → 01:19:41,750

there in terms of the quality of information,

01:19:41,750 → 01:19:44,083

as I said previously. And I think that that

01:19:44,083 → 01:19:48,583

could improve. I think the receiving end, yes,

01:19:48,583 → 01:19:51,166

things are cyclical. Yes, you go through, in

01:19:51,166 → 01:19:53,375

terms of all banks, go through good times or

01:19:54,083 → 01:19:56,500

times when you have innovation and evolution,

01:19:57,208 → 01:20:00,250

and you're rebuilding a platform and bringing,

01:20:00,583 → 01:20:02,791

say, for example, a new electronic platform in a

01:20:02,791 → 01:20:05,791

particular asset class, you might go through a dip.

01:20:06,250 → 01:20:08,500

But the key thing is continuing to have that

01:20:08,500 → 01:20:11,291

relationship, continuing to have that conversation,

01:20:11,583 → 01:20:13,333

trying to provide value ads away from

01:20:13,333 → 01:20:15,375

that, such as market structure content, maybe.

01:20:16,375 → 01:20:18,750

But there's a lot of different things that

01:20:18,750 → 01:20:21,166

need to come in. And I think it's conversation,

01:20:22,041 → 01:20:25,833

David, which keeps things flowing. Yeah, just to add to that, I would say,

01:20:27,541 → 01:20:30,250

trade or turnover on the sell side is probably a

01:20:30,250 → 01:20:32,916

bit of a risk on these desks. So it does happen

01:20:33,708 → 01:20:37,958

sometimes more often than not. But I think to

01:20:37,958 → 01:20:41,250

manage that, you just need to be open about what's

01:20:41,250 → 01:20:43,208

happening, as in from a bank's point of view with

01:20:43,208 → 01:20:46,458

your clients, how we're going to maintain liquidity,

01:20:46,458 → 01:20:48,041

who's stepping into that seed, and just try

01:20:48,041 → 01:20:51,291

to be as open and honest about it as you can.

01:20:51,333 → 01:20:53,458

And the same thing happens on the buy side as

01:20:53,458 → 01:20:56,458

well. So there is asset inflows and outflows,

01:20:56,750 → 01:20:59,291

and people go through different times. But

01:20:59,291 → 01:21:03,458

it is a relationship environment. Personally,

01:21:04,000 → 01:21:07,041

I've always strongly believed that the industry

01:21:07,041 → 01:21:10,833

is a family, in a sense. And if you behave in the

01:21:10,833 → 01:21:12,916

right way and continue to communicate and work

01:21:12,916 → 01:21:15,208

with people, the family's there for you, and they'll

01:21:15,375 → 01:21:18,291

work through it. But critically, behavior and

01:21:18,291 → 01:21:20,583

engagement is important to that, to make sure you

01:21:20,750 → 01:21:22,291

establish that relationship and get them

01:21:22,291 → 01:21:27,125

maintainer. Oh, the family thing. I like that. Let's talk

01:21:27,125 → 01:21:29,708

about the problem middle child in that case.

01:21:29,708 → 01:21:33,083

What incentives, Owen, do you provide to the middle

01:21:33,083 → 01:21:35,791

children, the mid-sized players to encourage

01:21:35,791 → 01:21:40,083

them to offer you flow, when they might not be your

01:21:40,083 → 01:21:41,708

favorite child, not necessarily part of your

01:21:41,708 → 01:21:44,000

top five in your panel? Yeah, I mean, it can be a

01:21:44,000 → 01:21:46,916

tricky position to be in because we tend to

01:21:46,916 → 01:21:50,375

stick to top tier in our large risk transfer

01:21:50,500 → 01:21:53,333

type trades. And there's a few reasons for that.

01:21:53,791 → 01:21:56,458

And probably the most important one being we want

01:21:56,458 → 01:21:58,166

to be relevant to them. And we want to have

01:21:58,166 → 01:22:00,125

leverage over them in our relationships, and we

01:22:00,125 → 01:22:01,833

don't want to spread our dealer wallet too thin.

01:22:02,458 → 01:22:07,208

So it can be tricky to break into that. And what

01:22:07,291 → 01:22:10,666

I usually say is, you know, highlight to us if

01:22:10,666 → 01:22:12,291

you're doing a significant amount of flow in any

01:22:12,291 → 01:22:14,541

particular market, because that definitely is a

01:22:14,541 → 01:22:16,625

reason for us to trade with you, because we want

01:22:16,666 → 01:22:19,083

who we trade with to be in the flow, so to speak.

01:22:19,333 → 01:22:22,750

So we want them to have an outlet to recycle our

01:22:22,750 → 01:22:25,583

risk. So that's very important. And the other

01:22:25,583 → 01:22:28,291

thing we would look at would be our E-trading stats. So

01:22:28,791 → 01:22:31,583

if we see them winning a significant amount of

01:22:31,583 → 01:22:33,666

volume there, that's also a reason for us to go

01:22:33,666 → 01:22:36,041

to them on the larger tickets, which is really

01:22:36,041 → 01:22:38,500

the ones that they want to see, because that's what

01:22:38,500 → 01:22:41,041

they essentially make money on. I think this

01:22:41,041 → 01:22:42,875

is the interesting thing as well, right? Because

01:22:43,875 → 01:22:46,125

it's not a closed family. I want to be really

01:22:46,125 → 01:22:49,041

clear in that, because it's not a closed family,

01:22:49,041 → 01:22:51,958

because you can see what the likes of the

01:22:51,958 → 01:22:53,583

proprietary trading firms, as we discussed

01:22:53,583 → 01:22:56,375

at the beginning of this podcast, are growing

01:22:56,375 → 01:22:58,833

in market share. And some of these guys are quite

01:22:58,833 → 01:23:02,041

regularly in the top five as counterparties in

01:23:02,041 → 01:23:04,416

terms of volumes with people across the street.

01:23:05,208 → 01:23:10,250

And so it's not closed, and it's not just completely shut off to the banks,

01:23:11,208 → 01:23:14,416

by the banks. This is open, and I think it is really, really important.

01:23:15,041 → 01:23:18,166

I think there's going to be an interesting point to your-- the point you just made,

01:23:18,166 → 01:23:21,125

oh, and around E-stats. Because if you say, if

01:23:21,125 → 01:23:22,791

you look at these prop firms, and you look at the

01:23:22,791 → 01:23:24,583

amount that they're growing, the amount that

01:23:24,583 → 01:23:28,291

they're doing on venue, if you then look at all

01:23:28,291 → 01:23:30,500

your E-stats, do you then have a fragmentation of

01:23:30,500 → 01:23:33,083

the market in terms of, I need the banks for the

01:23:33,083 → 01:23:35,791

big risk? I'm now starting to fragment my

01:23:35,791 → 01:23:38,875

electronic flow. Do we start to have a fracture

01:23:39,000 → 01:23:41,250

in that relationship of, if you do well on my

01:23:41,250 → 01:23:43,375

E, I'll let you see my big stuff? And I think

01:23:43,375 → 01:23:47,583

this is where I think it could be quite challenging.

01:23:48,125 → 01:23:50,500

Yeah, that's true. I think you can probably

01:23:50,500 → 01:23:54,916

split E-trading into two buckets. The kind of

01:23:55,833 → 01:23:58,875

liquid stuff that trades you're not concerned at

01:23:58,875 → 01:24:01,583

all about liquidity. So the way we would approach

01:24:01,583 → 01:24:04,208

that would be we automate as much of that as we

01:24:04,208 → 01:24:07,125

can. And I think the approach on the sell side

01:24:07,166 → 01:24:09,416

is the same. And then I guess you have the

01:24:09,416 → 01:24:11,541

mid-size tickets, which could be done, a platform

01:24:11,541 → 01:24:14,000

could be done voice, in which case you don't want

01:24:14,000 → 01:24:16,375

to blast those to market. You want to tailor who

01:24:16,375 → 01:24:19,750

you're sending it to. And that may be the

01:24:19,750 → 01:24:21,875

mid-player, it just may not be on that list. So

01:24:22,333 → 01:24:28,916

they want to be seeing that flow either by platform or by voice. And if I'm, say,

01:24:30,125 → 01:24:32,958

unsure about who's best or who should be included

01:24:32,958 → 01:24:34,875

in that market, that's a good measure for me to see

01:24:35,791 → 01:24:38,375

who should be there, who's winning those type of trades.

01:24:39,333 → 01:24:40,791

I completely agree. And I think when you start

01:24:40,791 → 01:24:42,958

to look at that, that's when you start having a

01:24:43,125 → 01:24:46,625

hybrid workflow model. It's about

01:24:46,625 → 01:24:49,916

understanding those flows, putting them together as a wider

01:24:49,916 → 01:24:52,458

view and having that visibility. It's not just

01:24:52,458 → 01:24:54,916

about trying to think about no touch and high

01:24:54,916 → 01:24:57,541

touches. This is all flows work together in

01:24:57,541 → 01:24:59,208

the central dealing desk from the buy side,

01:24:59,208 → 01:25:01,916

really providing value to the asset manager as a whole.

01:25:02,500 → 01:25:05,375

Yeah, because I personally want to be freed up

01:25:05,375 → 01:25:08,000

to add value on those kind of trades. I don't want

01:25:08,000 → 01:25:10,125

to spend all my time just clicking buttons on

01:25:10,125 → 01:25:12,583

platforms because it's really not the best use

01:25:12,583 → 01:25:17,333

of my time. So we've led very well in that case

01:25:17,333 → 01:25:20,375

on to E-Trading. And you've already touched on it

01:25:20,375 → 01:25:23,458

there about the types of trades and how

01:25:23,458 → 01:25:27,041

the engagement between buy and sell sides has

01:25:27,083 → 01:25:30,041

changed depending upon whether it's the smaller

01:25:30,041 → 01:25:33,041

trades, mid or the large. Is there anything that

01:25:33,041 → 01:25:37,083

we need to watch out for in this evolution of how

01:25:37,083 → 01:25:40,041

we trade with regards to the relationships though,

01:25:40,041 → 01:25:43,208

because you are having less contact points than

01:25:43,208 → 01:25:47,666

you might once have done. I mean, you've seen a

01:25:47,666 → 01:25:50,125

lot of changes in your time. The same as you

01:25:50,125 → 01:25:53,166

have, Matt. So are there any things that we need to be

01:25:53,333 → 01:25:55,708

conscious of to watch out for to make sure that

01:25:55,708 → 01:25:58,500

along with the benefits, along with the additional

01:25:58,583 → 01:26:01,458

value that these platforms provide, we don't

01:26:01,458 → 01:26:04,000

suddenly find out that we've lost something

01:26:04,000 → 01:26:06,000

else that's valuable that's important too.

01:26:06,000 → 01:26:07,875

From my point of view, you're right. And it does

01:26:09,208 → 01:26:12,375

take away some interaction with the banks in

01:26:12,375 → 01:26:16,250

terms of these tickets. And in terms of the actual

01:26:16,250 → 01:26:18,041

number of trades you do, they're obviously very

01:26:18,041 → 01:26:20,500

large, it's most of the trade you do. But in terms

01:26:20,500 → 01:26:24,083

of volume there, it's quite low because our

01:26:24,083 → 01:26:29,125

larger tickets will be much bigger. So there is a risk

01:26:29,125 → 01:26:31,000

to the relationship in some regard there that

01:26:31,000 → 01:26:34,500

you're not speaking to your counter parties as much as

01:26:34,500 → 01:26:36,666

maybe you would have before the trading platforms

01:26:36,666 → 01:26:40,875

were as proliferate as they are. However, there's

01:26:40,875 → 01:26:42,125

really no other way to do it. With the amount

01:26:42,125 → 01:26:43,625

of flow that's going through the market now,

01:26:43,958 → 01:26:45,875

it's the only option. I think it's only going to

01:26:45,875 → 01:26:48,500

go into increase. So there is a challenge there.

01:26:50,541 → 01:26:52,416

Probably best addressed by sales, like

01:26:52,416 → 01:26:56,291

salespeople, just to keep in contact, keep the relationship

01:26:56,333 → 01:26:58,750

open. And I don't see it causing too much

01:26:58,750 → 01:27:00,458

of an issue. When you look at this, I think,

01:27:01,708 → 01:27:03,708

I was talking to my son as he was going to his

01:27:03,708 → 01:27:08,125

new school this week. And he said, it's human nature

01:27:08,750 → 01:27:12,291

to push back against change, because change is,

01:27:12,291 → 01:27:13,666

you don't know about it. You don't know how this

01:27:13,708 → 01:27:16,041

is evolving. And it could create problems.

01:27:17,833 → 01:27:22,083

And when you look at this, that is the initial

01:27:22,083 → 01:27:24,000

reaction, David. When you look at a number of

01:27:24,000 → 01:27:26,041

the panels that have been asked, that's the initial

01:27:26,041 → 01:27:28,583

question. But fundamentally, if we go through

01:27:28,583 → 01:27:31,291

the debate we've just had, and you go back to the

01:27:31,291 → 01:27:33,750

point of what are the sell side doing, the sell

01:27:33,750 → 01:27:36,916

side for Owen, when we're coming in and stepping

01:27:37,000 → 01:27:39,500

up and taking that risk when he really needs it,

01:27:39,500 → 01:27:41,041

and to be able to manage that quality, which are

01:27:41,041 → 01:27:45,250

the trades that the sell side won't win. So that

01:27:45,250 → 01:27:47,625

means you've got to have voice sales. Voice sales

01:27:47,625 → 01:27:50,958

in no shape or form is ever dead, because that

01:27:50,958 → 01:27:54,208

is the relationship. You can't just leave the risk

01:27:54,208 → 01:27:56,750

models to run massive high risk trades with

01:27:56,750 → 01:27:58,958

an AI engine behind it. It's not going to work.

01:28:00,000 → 01:28:02,458

The critical point to that then is actually,

01:28:02,458 → 01:28:04,500

I think this creates diversity. You still have

01:28:04,500 → 01:28:06,458

the voice salesperson, you still have that person

01:28:06,458 → 01:28:08,708

generating the acts, being the advocate internally

01:28:09,083 → 01:28:12,750

for the client as well. But then also, you have

01:28:12,750 → 01:28:15,875

e-sales people now coming through. You have market

01:28:15,875 → 01:28:17,666

structure people coming in, providing that

01:28:17,666 → 01:28:19,500

value, providing that engagement, maybe providing that

01:28:19,500 → 01:28:22,416

color that might not have seen before. Maybe

01:28:22,416 → 01:28:25,333

agitating the conversation around the question of,

01:28:25,583 → 01:28:27,458

is the acts quality seeing the right thing?

01:28:27,458 → 01:28:28,708

Because now you're getting a lot of electronic

01:28:28,833 → 01:28:33,125

access. And is electronic the right term to use

01:28:33,125 → 01:28:35,750

in fixed income? Because when you look at fixed

01:28:35,875 → 01:28:38,041

income electronic trading, that means we need on

01:28:38,041 → 01:28:41,333

venue. Well, to me, that's nonsense. Electronic

01:28:41,333 → 01:28:43,208

is everything, right? Everything's touched by an

01:28:43,208 → 01:28:46,583

electronic trade. So we should look at revitalizing

01:28:46,583 → 01:28:49,583

that term and moving on. So I think there's more

01:28:49,583 → 01:28:51,833

opportunities, more touch points, but maybe more

01:28:51,833 → 01:28:54,375

rationalization of the traditional engagement

01:28:54,375 → 01:28:59,333

that you see. There's a lot to break part purely on

01:28:59,333 → 01:29:01,541

the electronic trading piece there. I'm not sure

01:29:01,541 → 01:29:03,916

we're going to have time to take that apart and

01:29:04,000 → 01:29:07,541

to fish in that pond any more today because we are

01:29:07,541 → 01:29:10,666

out of time. But listen, Matt, Owen, thank you so

01:29:10,666 → 01:29:13,875

much for chatting us through that and helping

01:29:13,875 → 01:29:16,083

us to understand the relationships, helping us to

01:29:16,083 → 01:29:20,291

understand really how to get the most value

01:29:20,291 → 01:29:23,750

in these relationships right now as things are

01:29:23,750 → 01:29:26,500

changing. Thank you both very much, indeed. Thank

01:29:26,500 → 01:29:28,083

you very much for having me. Thanks for having me.

01:29:28,125 → 01:29:31,583

And a reminder that you can catch up with our

01:29:31,583 → 01:29:35,000

previous episodes here on CMXtra on topics such

01:29:35,041 → 01:29:38,333

as AI in trading, T plus one, that's that's been

01:29:38,333 → 01:29:41,875

and gone. Now, leadership and culture, you can find

01:29:41,875 → 01:29:45,000

those and more wherever you found this episode on

01:29:45,000 → 01:29:51,416

thecmx.com that's the hyphen cmx.com. And of course,

01:29:51,416 → 01:29:53,083

all the normal places where you'll find your

01:29:53,083 → 01:29:55,166

podcasts. If you like what you heard today,

01:29:55,625 → 01:29:57,041

then share it with your colleagues, leave us

01:29:57,041 → 01:30:00,166

some feedback. The cmx page on LinkedIn is a great

01:30:00,166 → 01:30:02,208

place for that. And well, while you're

01:30:02,208 → 01:30:04,000

there, perhaps tell us what you'd like us to cover

01:30:04,250 → 01:30:07,375

in the future. And speaking of the future, at the

01:30:07,375 → 01:30:09,833

top of the show, I promised some intel on the next

01:30:09,958 → 01:30:13,583

in person cmx event. And we can reveal that.

01:30:14,625 → 01:30:17,500

Well, cmx will be back at the Woolwich works in London

01:30:17,791 → 01:30:21,583

once again, this time on Thursday, July the third

01:30:21,583 → 01:30:26,000

2025. So put the date in your diary, get practicing

01:30:26,000 → 01:30:29,375

on the scale x trick and the giant Jenga. And

01:30:29,375 → 01:30:33,166

trust me, July will be here before you know it. But

01:30:33,291 → 01:30:35,750

that's all for now from me, David and from all

01:30:35,750 → 01:30:38,208

the cmx production team. Thanks for joining us.

01:30:38,500 → 01:30:40,000

And until next time, bye bye.

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