“What’s taking so long?” was my favorite question from this month’s excellent FILS EU Connect conference.
In this case, a current FI EMS client was inquiring about his peers who so very clearly want one, yet still haven’t pulled the trigger. But I think it’s a broader question; despite some signs of progress, fixed income market structure moves s-l-o-w-l-y, probably even slower in EMEA than in the US given the need to coordinate multiple reg regimes. A lot of the themes and commentary at this year’s conference were consistent with 2024’s.
So…what’s taking so long?
· Alternative liquidity – Many want to see it, and sure it’s a fun talking point, but has there really been anything that has stuck since all-to-all RFQs? The panel was more about alternative protocols (auto-ex, voice) and styles (PT, packaging, shaping), and harnessing/leveraging troves of disparate liquidity data. Not really alternative, but for sure can help to get trades done smarter, based on market conditions. Lots are considering using credit index futures, but a show of hands in the room told us there’s still scant takeup. Non-bank dealers (who in some cases have picked up impressive market share): I don’t think you’re really “alternative”!
· AI –Though there’s a lot of talk and groundwork being laid to structure data in nuanced voice-driven markets, Gen AI remains more of a novelty for FI traders (described as “AI for the sake of doing AI”). There’s real application for Gen AI around searching through large documents (extract/distill deal terms), generating sales pitches, and service productivity.
· OTC Derivatives trading innovation – The sceptic in me says not much is happening because there’s not a lot of financial incentive for providers to change anything. IRS and CDS index pricing is so tight, that there’s not as much of a problem to fix. And neither dealers nor venues are incentivized to enter the market (does anyone actually want to start a SEF or MTF??)
I’d call out two areas of progress:
· Consolidated public tape – There have been plenty of fits and starts over the last few years, but it’s coming. For better or worse, UK/EU trades are on track to get publicly reported around the end of this year, and this information will be for sale after that point. Some sad consolidated tape context from the US: FINRA began reporting corporate trades in 2002 (TRACE), and MSRB started reporting munis in 2009 (EMMA). Ugh.
· TCA – is being used more aggressively, including to train models, as opposed to just as a “CYA” to appease internal auditors. There’s more data to work with, and increasingly good tools to sensibly pull it all together.
And back to the initial EMS question…
· While we have seen a number of clients moving forward, the delay in mandating an EMS is often driven by a client’s drawn-out OMS migration/upgrade. Ironically, adopting Adroit as the layer to handle trading and trading-adjacent functions has been proven to accelerate
and de-risk that very process. Basically “we’re too busy to focus on the thing that will make us less busy”.
· Adroit remain singularly focused on our OTC EMS, and we’re winning. 4 of the world’s 25 largest asset managers have entrusted Adroit as their FI EMS. We have more than doubled the size of our dev team in the last 12 months to support and accelerate this growth, industrialise our integration partnerships, harness the explosion of market data, and further compress our client onboarding time.
It’s Adroit’s time!
