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The Asset-Management Pressure Cooker – Bloomberg Gadfly 

Full Article: Bloomberg Gadfly

Behemoth investment firms, from Fidelity to Vanguard to BlackRock, are locked in fierce competition to attract assets, even if that means dropping their fees closer to zero. The result has been increasing strain, borne in large part by asset-management employees, who are being laid off or paid less.

Comments
  • Goose
    GooseMarch 3, 2017"Good points all. I would add govt intervention skewing fundamentals has made it harder to realize active mgmt gains.…"
  • Cougar
    CougarMarch 3, 2017"This article highlights some interesting asset management developments over the last few years: 1. The outcome of increasing correlation of markets & asset classes’ behavior - diminishing the attractions and ability of active funds to provide attractive returns over passive funds/structures - increasing the proportion of funds into trackers/ETFs. 2. Outright yields/returns diminished in most markets off the back of low central bank rates policy shining a spotlight…"
  • Viper
    ViperMarch 3, 2017"It seems like a pretty inevitable path but asset managers have enjoyed an unprecedented growth in assets and revenues for a while. Market rallied all around them and we went straight line tighter for the last 5-6 yrs. It is easy to say just use index funds. So perhaps the generic index following will be commoditized but skill in asset selection is a lot more important in times of increasing interest rates which is upon us so I wouldn't count active management out just…"

The ETF Illusion: An Inside Look – Seeking Alpha 

Full Article: Seeking Alpha

As I’ve said more times than I care to remember, the problem with all of this is that when you stop using something, it invariably falls into disrepair. That disrepair, combined with the absence of banks willing to lend their balance sheet in a pinch, means there’s no liquidity for the assets that underpin these HY ETFs

Comments
  • Tried and failed.
    Tried and failed.February 25, 2017"I agree, the secondary market infrastructure for bonds (Corp & HY) is expensive, inefficient and in decline. Everyone knows that, whether they invest in individual bonds, mutual funds or ETFs. The secondary market actually profits from inefficiency, it will therefore never fix itself. You can measure the secondary bond market inefficiency by observing the H216 revenues for trading desks and platforms. That uplift largely represents the trading cost to investors. A…"
  • Sundown
    SundownFebruary 24, 2017"This has been a long topic of debate. I think there is some merit to the story, but I think ETFs are labeled as the problem when mutual funds have a much larger foot print and the same issues. The true underlying problem is the mechanics of the HY fixed income market. When times of stress occurs, nothing in that market flow smoothly. If the market has a false sense of security that the HY ETF is the magic bullet to the market during times of stress, I think they are m…"

A Little-Known Startup Has Quietly Amassed 100,000 Wall St Users – Business Insider

Full Article: Business Insider

The aim is to become “the industrywide operating layer,” Mazy Dar said. Right now, OpenFin is typically delivered to a desktop together with an application that runs on it. The hope is that, in time, OpenFin will be on the desktop independent of any application, becoming a kind of finance application ecosystem of its own.

Comments
  • Jester
    JesterFebruary 17, 2017"I haven’t run into many people in our industry that really understand what OpenFin is and how it is supposed to make things easier. Let’s put it this way. Remember when most people used AOL for internet and about once a week they would get a CD to upgrade their service? Yes, you would have to constantly download new software just to get on to the internet. Crazy right? Now we just boot up the old computer and connect seamlessly. Well, this is what OpenFin may be able…"
  • Wolfman
    WolfmanFebruary 17, 2017"People used to say that Rodney Dangerfield was an overnight success story, even though he didn't make it in stand-up until he was in his mid 40s, even though he began writing comedy routines when he was 15! Ok, I'm a Dangerfield fan... His "I get no respect" became his signature line. OpenFin now has more than 100,000 users! They have been working on this vision for many years and are a group of talented, hard-working professionals. The idea that startups like OpenDoo…"

IOSCO Research Paper on FinTech (Read Pages 37- 45) 

Full Article: IOSCO

Platforms and technology providers are increasingly focusing on identifying and matching firm orders(rather than quotes) and connecting all market participants (including buy-side to buy-side). “Information Networks” are developing where the emphasis is on identifying pools of liquidity rather than trying to create liquidity.

Comments
  • Wolfman
    WolfmanFebruary 10, 2017"Once again, features selected by the Friday Newsletter make this a must-read site. This is a comprehensive, neutral and easy to understand state of the state research piece. As a market geek, I was particularly impressed with the execution platform chapter and in the Challenges/Risks summary. I think the juxtaposition of fixed income to equities is spot on, but also believe that we are in the midst of a great transformation which will be characterized by fits and star…"
  • Slider
    SliderFebruary 9, 2017"Great piece! Lots of mention to MIFD II. Will be very topical in the upcoming year as banks have to sort themselves out by Jan 2018.…"

Nasdaq to Overhaul its Fixed Income Trading Business – Financial Times

Full Article: Financial Times

Nasdaq has unveiled a radical overhaul to its under-performing fixed-income trading business, taking a $578m charge to end its eSpeed brand name and close its London futures venue. The US exchanges operator said that the impairment charge was because of a decline in operating performance and “a strategic change in the direction of our fixed-income business”.

Comments
  • Sundown
    SundownFebruary 6, 2017"If one remembers why Nasdaq bought eSpeed is because Bob Greifeld was betting (prematurely) on the volumes and volatility to return to the UST market and hence become a strong player in fixed income. He paid an absurdly high price for it (everyone thought so at the time) as we all know. The real problem was lack of business insight- the failure of Nasdaq to understand the changes in market structure. eSpeed's volume (at least 50%) was dominated by PTFs who extracted v…"
  • Goose
    GooseFebruary 3, 2017"I was always impressed with the sale price vs. the market share and instrument breadth of eSpeed. This is cuffing it, so perhaps a poster/reader has a more accurate depiction. At the sale, you had the treasury market, IDB market ~40% of volumes, eSpeed ~40% of that, trading mainly on the run treasuries, so 12 cusips? I see they are focusing on the off the run business, do they already have meaningful traction there, or is this a new push? It’s rare to get the better o…"
  • Wolfman
    WolfmanFebruary 3, 2017"This appears to be a full departure from the on the run treasury business, the largest and most electronic fixed market globally. For NASDAQ to abandon it and focus on the off the run market seems odd. With the expiry of the non-compete, BGC will likely enter the on the run market and try to regain some market share from BrokerTec. That said, John Shay is a capable leader and I'm looking forward to seeing what he does going forward. HL, great trade.…"

If A Tree Falls in the Forest: Illuminating the True Costs of Corporate Bond Electronic Trading – ViableMkts

Full Article: ViableMkts

It is very surprising that as buy-side institutions laud corporate bond electronic trading, very few fixed income asset managers know the true details of their transaction costs. In other modernized markets like equities, asset managers must be intimately aware of transaction cost details for electronic trading for two crucial reasons

Comments
  • Stinger
    StingerFebruary 3, 2017"Great points, Merlin...really sobering.…"
  • Merlin
    MerlinJanuary 28, 2017"I really like Jester and Goose's comments (and I am sure I have taken shots at them before), they are spot on. I encourage the buy side to read their electronic trading vendor user agreements as my guess is 99% of those trading on them never have, and see what fees are disclosed. I think that you will be surprised to find out that with certain vendors there are no fees disclosed and no fee schedule provided. And also educate yourself as to what 'open trading' charges…"
  • Goose
    GooseJanuary 28, 2017"I was at a recent conference where I heard a buy side firm say "they wanted the incumbents to develop the better protocols they are seeing from new entrants". That gets a 100 on the laugh-o-meter. Yes, let me step right up and develop something that could erode my fat core business, acknowledge and compete in price and innovation with an upstart. As Jester noted, stop looking over your shoulder.. and look in the mirror.…"
  • Jester
    JesterJanuary 28, 2017"Let me give you readers the Fisher Price version of this article: There is no price competition for corporate bond electronic trading and this is costing the asset management community a TON in transaction fees. Why this is happening is a combination of laziness, arrogance, and more laziness. Just read this gem from Vanguard’s 2016 piece (Innovation and Evolution in Fixed Income Markets): “Focusing trading on a limited number of electronic venues, or aggregating trade…"

Pricing (Corporate Bonds) in the Dark – Risk Magazine (free download)

Full Article: Download Risk Article

Asset managers claim they have an information edge over dealers when it comes to (corporate) bond pricing. How are sell-side players countering the threat?

Comments
  • Slider
    SliderJanuary 20, 2017"I think the buy-side is also scarred by what happened in 2008. They understand now that given the evolving regulatory environment, they don't ever want to be beholden to dealers for liquidity. And why should they be at this point given they hold more of the bonds and have better price discovery? Dealers were always banking on the opaqueness of the OTC market to make money and that model is no longer viable given the push to transparency. Depending on the nature of the…"
  • Goose
    GooseJanuary 20, 2017"Risk takes up the mantle on a critical liquidity topic that hasn’t gotten much coverage. Dealer price discovery continues to diminish to the detriment of the dealers, and just as importantly, to the buy side. While the buy side can opportunistically provide liquidity, I believe it is a pipe dream to think they will become truly significant players in immediate risk transfer. The more markets evolve electronically, the more important the market makers become. Ask the e…"
  • Wolfman
    WolfmanJanuary 20, 2017"Information was not at the core of the dealer-as-market-maker model - capital was. In the vacuum left by persistently low rates and regulatory restrictions on capital at risk, the buy-side is engaging as price makers. Rates aren't skyrocketing and risk tolerance may increase somewhat, but the reality is that if dealers can't make money making markets, they have no incentive to do so. I think the most interesting part of the report was that the buy-side starts with a p…"
  • Cougar
    CougarJanuary 20, 2017"I agree with Viper's points. We know the sellside is starving secondary trading of balance sheet for years because the business was not economically viable from capital costs, and more recently increased information asymmetry biased to the buyside etc. Banks now recognize this and better need to control their information. The buyside needs the sellside as its insurance policy not for the 95% of time but the 5% when the buyside price makers and sellside market makers a…"

Wall Street Startup Backed by Soros and Thiel is in Talks to do a Big Deal – Business Insider 

Full Article: Business Insider

Electronifie, a bond trading platform led by former Goldman Sachs trader Amar Kuchinad, is in exclusive talks to be acquired by TruMid 

Comments
  • Jester
    JesterJanuary 15, 2017"I hope for the best for these two initiatives, but the numbers don’t look good. Mainly, the institutional corporate bond market simply doesn’t have enough activity to create a meaningful electronic trading business around. One thing is clear. This new combined entity will have to reduce overhead considerably to get anywhere near cash-flow positive in the next few years.…"
  • Wolfman
    WolfmanJanuary 13, 2017""The combination would combine the two platforms' user bases". Electonifie has "unique users" and will be added to "TruMid's actively engaged users". I'm not clear as to what this really means for the merger. There's no clarity as to how much, if any, volume Electronifie has attracted or which platform will be used. The market is looking for an alternative to MarketAxess, that's clear from the number of platforms run by smart people who wouldn't invest without some du…"

‘Trust But Verify’ in Bond Market – Bloomberg

Full Article: Bloomberg

The bond market is “closed off to you and me” and often involves shady practices and less-than-truthful information, Butswinkas said. Former President “Ronald Reagan’s saying ‘trust but verify’ would be an understatement,” he said.

Comments
  • Merlin
    MerlinJanuary 6, 2017"What do you think market makers do if the don't "make up a price"? Who/where do they get the price from? If someone else, how did the first person in the chain come up with the price? All prices are "made up " in that it represents what someone is willing to pay at a moment in time.…"
  • Goose
    GooseJanuary 6, 2017"I agree with Merlin. This, or shades of it, happen in every pool of commerce out there. You, Mr. Institutional Investor, pulled up your trusty Bloomberg, ran the bond with your own assumptions, and decided there was value in the security at the offer price. Your bad.…"
  • Slider
    SliderJanuary 6, 2017"If he gets off, it would set an extremely bad precedence. Its time for the corporate bond market to head toward transparent pricing - yes you can't make the kind of money you used to anymore if prices are transparent but it is what it is. There is no reason for this type of inefficiency in such an established market. The protocol can't be you can just make up prices whenever you feel like it because 'everyone does it'. Its ridiculous. Have we learned nothing from 2008…"
  • Mustang
    MustangJanuary 6, 2017"This is a complete and utter joke. This defense seems ludicrously stupid. I am pretty sure they got this defense from Animal House: "...You can't hold a whole fraternity responsible for the behavior of a few, sick perverted individuals. For if you do, then shouldn't we blame the whole fraternity system? And if the whole fraternity system is guilty, then isn't this an indictment of our educational institutions in general? I put it to you, Greg: isn't this an indictment…"

Tensions Build Over Bond Allocations and Pricing Feedback – Overbond.com

Full Article: Overbond

Bond investors and syndicate bankers are growing increasingly frustrated with each other as the already thorny topic of allocations and how to reward investors for their feedback is being further poisoned by new regulations.

Comments
  • Goose
    GooseDecember 16, 2016"Breaking down the wall of the new issue construct will be no easy task. It’s been a new issue dream market for awhile now, deals crowded with firms reaching for yield, syndicate desks are shooting fish in a barrel. Auction style IPO/debt raising have worked (Google IPO, US Treasuries,) and Zions Bank has a solid track record of auctioning new and secondary debt, albeit on a smaller scale. Will electronic methods like this catch on as automation continues? What happens…"
  • Merlin
    MerlinDecember 16, 2016"The new issue process in corporate bonds is criminal activity that the regulators have ignored for years. Playing favorites is the rule not the exception. And there is plenty of reason to play favorites; see more secondary flow, take someone out of a position when needed, you know, you scratch my back and I'll make sure you get great new issue allocations! The article seems to suggest that some dealers are going to 'equalisation' (must be European given the use of the…"
  • Wolfman
    WolfmanDecember 15, 2016"Well, well, well, we really seem to have hit a nerve with the 10,000 hours team. It's hard to ignore the sarcastic cynicism with which the experts evaluate the syndicate relationships. It's clearly based on fundamentals that over the past six or seven years have shifted and may no monger represent how this process should actually work. The increase in issuance and its related demand from investors has certainly made the syndicate managers job easier, but in the end, i…"
  • Mustang
    MustangDecember 15, 2016"I always wonder why regulators turn a blind eye to so many clearly obvious "inequities" in FI. In particular, I like this line: "Issuers are paying us for our distribution capabilities and certainty of execution.” If the secondary market is any indication, the increase in electronic trading and the "all to all" sentiment don't say much about your "distribution capabilities" and "certainty of execution". In fact, quite the opposite. Primary issues largely sell themselv…"