We Still Need Someone to Talk To – Best Execution
August 20, 2015 \
6 Comments

More complex trades and less liquid instruments are still voice traded – FOW estimate that 50% of U.S. government bonds and 80% of credit markets and corporate bonds are still traded telephonically. Although advances in technology and regulatory pressures will drive increased electronification, there will always be a place for voice. FULL ARTICLE
Comments
What I find most interesting in this article is the subliminal recognition that evolution does not always mean progress to a higher order. We can get into a deep existential discussion here and question if Darwin’s Origin of the Species really defined a progressively better evolutionary process, or just an evolutionary process that didn’t necessarily yield a higher order of species, but a stronger one. It is, I believe, the way most of us view evolution, as a progress toward an advanced species, but perhaps it is much more than that. Perhaps the evolution is not to replace humans in… Read more »
We should dig a little deeper into Darwin’s Origin of Species Theory. If we understood it better, it might indeed help us answer the fixed income future-of-trading question. Darwin’s theory is not that organisms (even traders) evolve to a high order, achieve greater efficiency, or become stronger. His theory is that in a population filled with individuals each having slight variances (think: different trading protocols and exchange features), the individuals best suited to survive in the current market and competitive environment, will do so and will become dominant. He is not saying the strongest, largest, or most effective will survive… Read more »
Our recent focus articles have highlighted the complex facets of the bond markets and this article puts a stamp on it” The facts are that the corporate bond market is complex, it is competitive and it’s growth is led by financial engineers @ the issuers and especially @ the underwriters. What the corporate bond market is not, is Vanilla or Fungible. Instead of trying to change the reality of the markets, recognize that we are @ capacity electronically with the small and simple trades all being executed electronically. We live in a collaborative workforce environment. Bond traders want and need… Read more »
Mr. Cumberland’s comments are on-point, the more complex the instrument, the more human action is needed. Anything generic, including strategy, can be provided most efficiently via machine. What cannot be ignored is that while people will always be a firm’s most valuable resource, it is also a comparatively expensive one. Humans will be needed to either run the machines, sell more complex (and relatively higher margin) products and maintain important client relationships, etc. There is no doubt that on a net basis their headcount generally will be lowered in all businesses, but obviously more so in those with the lowest… Read more »
Cumberland states: “Celent has estimated that over 50% of buy-side fixed income trading will be electronic by the end of the year.” This is no great revelation based on the fact that many fixed income segments are already there. For example a large Dealer estimates the US percentage of electronic trading, by sector, as follows: CDX 98%, Interest Rate Swaps 60%, US Treasuries 55%, Agencies 30%, US IG Corporates 22%, US HY Corporates 8%, and Single Name CDS virtually non-existent. The author would score better if he cited predictions from specific sectors of the fixed income market. “A recent Charles… Read more »
I do think the article is stating the obvious, but given the mania over e trading and liquidity, it’s a nice timely reminder of reality. The most liquid electronified markets in the world still have large human interaction and intervention in the trading process. As the more heterogeneous FI markets evolve electronically, low hanging execution fruit may disappear, but the high touch OTC opportunities generated by an electronic ecosystem will be numerous. Do the latest round of e-newcomers have the right models? If not, lessons will be learned, applied, and the next generation will take their shot moving the meter.
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