Fixed Income Platform Blends Analytics, Execution

Terry Flanagan

Fixed-income traders in cash and futures markets have to address two fundamental issues: deciding what to trade and then executing the trade. Quantitative Brokers and RiskVal Financial Solutions have teamed to solve both problems on a single platform that combines RiskVal’s financial analytics with QB’s algorithms and transaction cost analysis.

The integration of QB algorithms and RiskVal trading analytics provides traders with real-time control and transparency into their outright and relative value executions, the companies said. RiskVal and QB have developed screens that can route orders to Legger, QB’s multi-leg execution strategy, for basis and relative value trading.

“In equities, a lot of execution is straight single-name, but in the fixed income world, it’s a lot of relative-value trading,” said Christian Hauff, CEO and co-founder of Quantitative Brokers, a provider of algorithms in cash Treasuries, fixed income and futures markets. “You might be doing a butterfly, or a weighted basket of short term interest rates versus a benchmarked five -year or ten-year. The ranges vary a lot.”

QB’s Legger algorithm executes user-defined structures with any ratio and number of legs across cash US Treasury and futures markets. A detailed TCA report is generated for each execution, providing full post-trade transparency on the order and slippage performance.

Christian Hauff, Quantitative Brokers

Christian Hauff, Quantitative Brokers

“We specialize in optimal execution in primarily futures and interest rates, and cash treasuries,” said Hauff. “What we’ve done over the last five years has been to stay true to a vision that the interest rate sector requires smarter, transparent execution.”

By marrying QB’s best execution algorithms with RiskVal’s relative value analytics, the companies are offering a platform that integrates trade discovery with execution tools.

“It’s a revolutionary change because the fixed income industry needs a good execution system,” said Jordan Hu, founder and CEO of RiskVal. “Dealers spend millions of dollars to build infrastructure just for connectivity. What we try to offer is more than just execution, it’s actually smart execution to make you trade better.”

RiskVal helps traders to decide on what to trade by extracting relative value information from the liquidity pools for 5-year, 10-year Treasuries, etc. “In the past, traders had to go to an execution system which is a different screen,” said Hu. “Real estate is very expensive for every trader. Say they have to buy some five year. Now they have to go to an execution system to click on the five year and buy. The market doesn’t stay and wait for you to finish your job. The market keeps moving. That’s where the algorithms that QB provides play a very important role.”

Primary dealers that provide the core liquidity in on the run cash treasuries do virtually all of their trading electronically on Icap’s BrokerTec and Nasdaq’s eSpeed, which together represent 95% of the traded volumes in those products. The RiskVal-QB partnership is intended to drive further productivity increases that come with electronic trading.

“As the tools get smarter and more transparent, trading increases,” said Hauff. “Because people are more productive and they have more accuracy on their trading, they have more confidence in what they can do. They want to have transparency and productivity that comes with not having to sit down to work [separate screens].”

In 2014, the Financial Industry Regulatory Authority and the Securities and Exchange Commission approved QB as a broker-dealer for government securities.

“One thing that’s also a part of our vision and positioning is that Quantitative Brokers is a regulated broker,” said Hauff. “There’s no conflict of interest with our agency-only platform. There’s no allegiance to any sell-side organization or buy-side organization.”

Featured image via PiXXart Photography/Dollar Photo Club

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