Addressing Market Liquidity – Blackrock White Paper
July 15, 2015 \
8 Comments
Our recommendations take a three-pronged approach: (i) market structure modernization, (ii) enhance fund “toolkit” and regulation, and (iii) evolution of new and existing products
Comments
The first phrase that comes to mind when I read this article is that “If you’re the lead dog, you have the best view”. The second one is “Everyone has their own self-interests in mind”. This article is an excellent recap of the liquidity issues in the market and addresses many of the market structure challenges that lie ahead. BlackRock, in my opinion, have always been the most “street-like” of the large money managers. It’s founders and leaders were from Wall Street and their mentality has always been to stay close to the transactional nature of the markets. the article… Read more »
I doubt BlackRock is getting better pricing in the anonymous Inter-Dealer-Bond Market – as opposed to using their name with the sell-side. However, the move breaks down another wall in their quest for All-to-All trading.
Many assume that bond funds are safe. BlackRock discussed enhancing disclosures regarding liquidity risks of funds. Hallelujah! Liquidity is not an entitlement. Unintended consequences of regulation and monetary policy have altered corporate bond market structure and created risk. Retail or, for that matter, any end user who invests in funds should understand these risks.
This article is a refreshing change from the run of the mill press content of the last three months. Well done BlackRock! It is great to see some leadership in looking at portfolio liquidity and how asset managers can and should be thinking about liquidity given what we know about dealer balance sheets and market participation. If investors are in a Crowded Trade to use BlackRock nomenclature then they should adjust their liquidity provisions. This is a worthwhile and meaningful contribution to the whole ‘market liquidity’ discussion. I don’t find BlackRock’s use of trading volume versus notional outstanding a meaningful… Read more »
Excellent article as it encapsulates the whole gamut of issues and annunciates the anticipation of adjustments that have or will have to come to the asset owners/buyside. The article starts a new era in focusing on the shift in dialogue to actual solutions (increase in protocols, embracing of advancements in market structure/venues). The discussion on the evolution of a fixed income commission-based agency model might make Mr. Bogle’s “low cost execution dreams” hiccup, but the fact is a venue/dealer/protocol where end buyers and sellers actually meet directly with a fixed fee format will end up being a better outcome for… Read more »
Remember, the reporter does all the work on a story and the Editor creates the headline. In this case, the editor boils this down perfectly as “BlackRock’s Latest Fix for Bond Trading Is Circumventing Banks”. What I find remarkable is the fact that BlackRock has made it a point to throw down the gauntlet and poke the tiger. I agree with Hollywood that BlackRock won’t get better pricing in the IDB market than they can when they disclose themselves to a dealer, but the mere fact that they are standing out from the crowd and telling the dealers that they… Read more »
Charlie, thank you for so eloquently stating my position on the benchmark issue concept. Wolfman, I am in complete agreement on the IDB move. “I want to dis-intermediate and anger you….to trade with you!” That was some broadside. Will the street react as they have in the past? Are they still able to?. Interesting that BR says a key move forward is aggregation of market liquidity from different venues. I completely agree…but much easier said than done if you aren’t Blackrock. Unlike in other markets, much of the current ATS world doesn’t make it easy. Any competition around price execution… Read more »
This is a much better attempt at trying to move things forward than the last Blackrock paper. Much broader and includes things the buy side should be doing. However, think they have simplified the activity of principal markets where on page 2 they state, ‘In principal markets, the broker-dealer bears the execution risk of the transaction.’ I would argue that in many cases they are bearing no risk as the execution of the trade is either closing out a position or hedging up something. In fact, in principal trading, a good market maker gets hit when they want, lifted when… Read more »
In the first paragraph they highlight the high levels of new issuance due to low rates. What they don’t highlight is the free alpha which has been too hard to pass up and has contributed to the continued new issuance. Would there be as much new issuance in the street if Buy Side firms were not trying to snap it up as an easy way to meet fund targets? In the second paragraph they highlight they are looking for a way forward but what they seem to ignore is what they have just said, 2000 – 2008 issuance was much… Read more »
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