Is the Future of Last Looks (in fixed income eTrading) Tied to Information? – FixTHub
August 19, 2016 \ 6 Comments
Full Article: FixTHub
The real issue is that market participants don’t have all the consolidated information at the moment they need it to make immediate decisions. Lack of consolidated information is hurting our market.
On the surface, this is an interesting and well written analysis of the debate surrounding live, executable prices and last look. It made me think of the scene in the movie The Big Short when the hedge fund housed in Morgan Stanley was being pitched the bets against the hosing market. Just before they agreed to do the trade, Vinnie Daniel says to Jared Vennett, “How are you f***ing us? Even at the moment of execution, there is a sense of some information asymmetry that exists between the buyer and the seller. This piece refers to this as information fragmentation,… Read more »
Wolfman– interesting comparison to the travel industry. Something that I’ve thought recently… must be the full moon.
While information asymmetry is abound in Fixed Income, it is also prevalent in every market, including equities, as you mention. However, equities has a “point and shoot” market for executing trades. In Fixed Income, we have to remove “the safety”, i.e. Last Looks, prior to executing trades. If asymmetry exists in both, then why the difference in executing trades?
Equities are a products designed for retail traders/investors whose numbers are in the tens of thousands on any given day. Fixed income as an asset class trades much less frequently and for very different trade objectives. Individual investors buy and hold fixed income because it’s fixed income; they don’t trade bonds for a potential profit. In addition, the structure of the bond market has, and may always have, the need for someone to warehouse bonds. Who does that is in transition, but I think it will always be apart of the bond market.
The term “Last Look” is a little confusing here. In my experience that refers to a client coming back to a dealer and giving them a chance to trade a bond at or better than the best price the client found in the market. I know that in some other markets such as FX, Last Look refers to a price being “subject,” and not “firm,” until confirmed a last time. Regarding this distinction in the bond markets, people with equity experience are always amused (or disappointed) that the bond market’s prices/quotes are not real. The difference isn’t purely black and… Read more »
Agree with your request for a definition of ‘last look’ here. We have said many times that the fixed income market is not the equity market and it would be good if regulators and participants stopped trying to push a square peg in a round hole. Having said that, I find that the FX practice is simply a way for traders to stack the deck a little more in their favor, perhaps it arises from trying to make prices good for a longer period of time than is feasible in reality. Does the buy side want to have their cake… Read more »
Interesting point Mustang. I think the key is looking at the state of equities today. The lit order books reflect the result of a fair access, anonymous, executable market. Off-exchange market share in July 2016 increased 2% month-over-month to 38.3%, the highest off-exchange market share since April 2010. The asymmetrical value proposition results in oddlot markets where market makers are paid to take the adverse risk. Equity markets have been in a constant experiment to move flow back to less transparent trading methodologies in order to move larger or less liquid risk without market impact. I think you can get… Read more »
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