Before each side was invited to speak, an initial poll of the audience found that 79% of those who voted were in favour of change, while 21% said they were happy with the status quo.

All in favour

Arguing in favour of a change to the current regime was Jupiter Asset Management’s head of dealing, Mike Poole, who said traders were bleeding alpha and it was time for a “grown up conversation” around costs, particularly when an order cannot be filled.

“Our ability to ascertain how much we pay can be curtailed by the nature of trading. Opportunity costs in a fragmented marketplace has been a silent killer of investment returns for years,” said Poole.

“We can’t get rid of opportunity costs but enhancing conversations with post-trade analysis and understanding of costs is vital as we approach new transparency in fixed income. We have a fiduciary duty to shine a light on how much we’re paying for a balance sheet.”

Instead, he suggested replacing the current “sporadic” regime with a “liquidity tree that can remain standing in the storm” perhaps in the form of paying commission on a trade-by-trade basis or through a flat monthly fee.

The case against

Opposing Poole was director and head of G7 portfolio management at EBRD Treasury, Jasper Livingsmith, whose argument was simple.

“As a price taker we have no say over the cost of balance sheet. It’s too late. The ship has sailed and there are other things we can do to mitigate cost,” he said. “We’ve been discussing for many years how to challenge this but we’ve come to accept there’s not much you can do.”

Instead, he claimed that with the ground constantly shifting in today’s market and with banks being such complex institutions, any change to this system was unachievable.

“Banks are wanton havens of complexity. It’s very hard to have clarity when banks themselves do not know,” he said. “Quite often there’s a structural reason for alpha being unattainable.”

A second audience poll done at the end of the debate found that Livingsmith had gained a large portion of ground, with the split now closer to 45% and 55% in favour of Livingsmith’s position.

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The rising cost of sourcing and aggregating data was a key topic discussion, with all buy-side panellists in agreement that this was the most poignant issue surrounding market data.

In response to the issue, buy-side panellists were asked if they would consider selling their transaction data in a bid to mitigate costs.

“If we agree we are not going to be positively surprised around issues to do with fragmentation and cost in the next few years then you have to assess selling data as an option,” said buy-side panellist and head of fixed income trading for EMEA at Fidelity, Lars Salmon. “The give to get model is increasingly popular.”

Recently launched Glimpse Markets for example, champions this model, offering buy-side contributors a dividend in exchange for their data.

Salmon confirmed that Fidelity had developed an internal solution for aggregating data, however, as noted by him and other panellists, such a process racks up extensive development and maintenance costs.

Offering a data vendor perspective on the panel was Michele Nicoletta, VP of fixed income corporate development at ICE.

“With regard to the cost question, there are implicit costs for aggregating data,” she said. “You get what you pay for and the cost savings of having the right data must also be considered. Cost pressure is causing clients to take an enterprise approach to providers and sourcing.”

When asked what current data innovations were most exciting in the industry, panellists noted a variety of areas and solutions, including cloud solutions brought to market by Snowflake, desktop interoperability, fixed income ETFs and the transparency they have filtered through the market’s ecosystem, and the growing synergies between coding and trading.

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The growth of the fixed income ETFs market is set to be a key theme at this year’s Fixed Income Leaders Summit (FILS), having seen a sharp increase in usage by traders as a lower risk strategy amid market conditions.

Speaking in a new frontiers on fixed income liquidity fireside chat, head of fixed income at Flow Traders, Ramon Balje, said fixed income ETFs had now reached $1.7 trillion in AUM and predicted this would grow to $5 trillion in the next five years, adding that ETFs now accounted for 10% of the credit market.

“There is no denying there is big innovation taking place in fixed income ETFs and their interaction with the bond market,” he said. “Portfolio trading is the most natural way to make them interact.”

Algorithmic trading – now a firm pillar in firms’ fixed income execution strategies – was also a key topic of discussion and was noted by panellists as central to the evolution of how liquidity providers were adapting to support the buy-side in the current market ecosystem.

Exceptional and challenging liquidity conditions were predicted as here to stay for the foreseeable future, with panellists noting that market depth was subsequently likely to be lower as participants adapt to the new normal.

“Traders need to source the best price and proactively think about liquidity and the impact of their actions,” said head of EMEA credit trading at JP Morgan, Sanjay Jhamna.

“Firms need to adapt their algorithmic strategy to be an all-weather liquidity provider. As liquidity becomes more challenging algos bring more value to the table. They’re adaptive and inherently fast in price and distribution. They also allow for the systematic bridging between the bonds and bonds ETFs markets.”

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