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The New Execution Champions: Voice to Venue (Part 2 of 5)

Read The New Execution Champions: Voice to Venue

Rebecca Healey, Liquidnet’s Head of Market Structure & Strategy in EMEA, investigates how the introduction of new European regulations will impact trading in corporate bond markets in the second post of a 5-part research paper. Read part 1 here.


The industry is on the brink of a new evolution in the provision of liquidity and execution performance. Wholesale automation of buy-side bond dealing desks has arrived. Successful implementation however will require new execution champions to step up to the fore to ensure that the asset management industry, as well as end investors, can fully benefit.

The following is the second report in a series of five reports on “The New Execution Champions”, with this report focusing on how trading will shift from voice to venue.

Key Facts

Under MiFID II trading will now need to move from OTC voice to venues such as systematic internalisers (SI), organised trading facilities (OTFs) or multilateral trading facilities (MTFs). The challenge for the industry will be how this works in practice given that OTC voice trading is still so prevalent.

Multiple requirements from the need to evidence best execution as well as transaction report are pushing the need for the collection of accurate data in a time-stamped audit trail. OTC voice by comparison is opaque and often subjective; a style of trading activity which will no longer be fit for purpose in a post MiFID environment.

The sell side have embraced MIFID II somewhat reluctantly and the challenge for the buy side is understanding how they can interact with their brokers going forward. Confusion still surrounds how the SI regime will operate and how certain venues will operate given that authorisation is still outstanding.

Change will not happen overnight. The extent and speed to which bond trading becomes fully electronic will be dictated by the size of the asset manager, the instruments and the volume they trade. The likelihood is that processed trades will become an interim step in moving what was once voice trading towards an electronically processed framework.

As more data becomes available, market participants will become more strategic about where they choose to trade. As ownership of execution shifts from the sell- to the buy-side, the evolution of the buy-side trader will continue to greater automation of workflows. This in turn will change demand for products and services to establish where and whom to aggress and avoid.

During October and November 2017, global asset management firms representing $13.1 trillion in assets under management were interviewed to understand how the introduction of new European regulations will impact how they trade in corporate bond markets.

  1. Fifty-seven percent of respondents are planning to switch OTC voice activity onto platforms using processed trading protocols.
  2. 63% are planning to switch to greater automation which will accelerate an evolution in electronic trading, as opposed to a wholesale revolution of algorithms, HFT and smart order routers.
  3. As execution selection is decoupled from the provision of research, the requirement to evidence best execution is leading to a change in practices; 90% expect to record the steps they take to find liquidity.
  4. The full impact of unbundling has yet to be felt; only 43% of respondents are fully unbundled, and 66% are still in discussions with their brokers over the cost of research, indicating further change ahead for traditional buy- and sell side relationships.
  5. Forty-three percent have concerns regarding how the SI regime will work in practice and a further 27% are waiting to see how the industry responds before they take a decision.
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