QB Rides Fixed Income Evolution

Terry Flanagan

Quantitative Brokers, a fixed income algorithmic broker, has opened a London office to take advantage of changes in the market structure as electronic bond trading continues to increase.

Jonathan (Jonty) Field, head Europe, Middle East and Africa at QB, told Markets Media: “We opened the London office on January 1 to support our European clients and to take advantage of market structure evolution.”

Field joined the broker from European hedge fund, AHL, where he led the trading analytics team.

Since the financial crisis banks have been cutting their balance sheets and reducing their bond inventories, resulting in less liquid trading markets.

Greenwich Associates said in a report this week that 45% of institutional investors execute at least some portion of their fixed income trading volume electronically after interviewing 4,000 institutional investors globally. MarketAxess leads electronic corporate bond trading in the US with Tradeweb leading US treasury trading. Bloomberg has the largest market share in Europe and Asia.

The report predicted that electronic trading in fixed income will continue to grow slowly in coming months, with US corporate bond markets showing limited growth, European credit markets growing steadily and US treasury markets growing more quickly.

Kevin McPartland, head of Greenwich Associates market structure and technology, said in a statement: “While the imminent rise in rates globally is expected to drive investment dollars away from bonds, this secular shift could increase volatility and volume, ultimately boosting e-trading usage across the board.”

QB is an agency-only broker that has created algos specifically for interest rate markets.

Field said: “QB has developed algos for traded futures across exchanges but going forward that could evolve to exchange-traded swaps or any fixed income product with a central order book.”

This month, for example, CME Group said it is launching a Euro-denominated deliverable interest rate swap futures, subject to regulatory approval, adding to its existing US version of the contract.

CME Group said in a statement that US deliverable interest rate swap futures have traded more than one million contracts in the first year since launch, with record open interest of more than 114,000 contracts in December.

QB believes it has an advantage from specialising in fixed income and has a simulator that allows clients to test the firm’s algos for free in real time – prospective clients get live fills of their trades which they can compare against rival offerings.

Field said: “There are many Robocop-like algos, mechanical without a deeper appreciation of the market’s unique characteristics. Our approach is to really understand the market and what our clients want to achieve. Like Iron Man, we then amplify the human touch.”

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