Regional Dealers Demand Fixed Income Liquidity

Terry Flanagan

As the fixed income marketplace becomes more electronic, regional dealers need to connect to multiple trading venues in order to access liquidity in U.S. corporate, municipal, and government bonds as well as automate certain aspects of trader workflow, such as price generation, trade negotiation and execution.

“What we’ve seen in a post global financial crisis world is that fixed income, as an asset class, has moved more quickly than many expected into the realms of electronic trading,” said Sunil Biswas, product manager for Bloomberg’s Electronic Trade Order Management Solution (ETOMS), which complements Bloomberg’s Trade Order Management Solution (TOMS), an order and inventory management system for sell-side fixed-income dealers.

“Government bonds were there before, but now corporate bonds are moving more steadily towards electronic trading,” said Biswas. “We see a gradual movement away from voice-based trading for small tickets, and much more focus on adopting electronic trading workflows. That creates demand for a dedicated product, such as ETOMS, which supports the trading workflows associated with interacting with electronic fixed income markets.”

Sunil Biswas, Bloomberg

Sunil Biswas, Bloomberg

Regional dealers are looking for technology to help them operate more efficiently in an evolving marketplace impacted by new regulations, investor demand for more transparency, and balance sheet constraints.

“As the fixed income world moves forward – and we’ve seen this with other asset classes, such as equities and FX – there is a gradual migration from voice-based trading to electronic trading,” Biswas said. “Certain external forces act as a catalyst to drive it that way. Regulation is one such driver. Another driver is liquidity fragmentation.”

TOMS is an order management system for fixed income dealers. It helps traders automate post-trade workflows such as booking a trade, updating positions, risk and P&L, and trade reporting to regulators.

ETOMS supports pre-trade workflows such as price and quote generation, and distributing quotes to the electronic market place. It enables dealers to connect to various electronic venues, and act as either a liquidity provider or a liquidity taker.

“When there is a lack of liquidity for buy-side participants to interact with, they have looked to electronic trading venues to source liquidity,” said Biswas. “In aggregate, what we see across asset classes is that trading is becoming more electronic. Regulation is just acting as an accelerator to push us in that direction.”

Southwest Securities, a Dallas-based regional dealer, uses Bloomberg ETOMS to manage electronic inquiries and orders, automate price quotes and connect to fixed income liquidity venues.

“We use Bloomberg TOMS and ETOMS to aggregate liquidity from across the fixed income universe and manage our electronic order flow, inventory and risk exposure more efficiently,” said Daniel Leland, executive vice president of Southwest Securities. “Bloomberg ETOMS connects us to diverse liquidity sources and automates trader workflow so we can focus on providing our clients with best execution.”

Used in combination, Bloomberg TOMS and ETOMS enable firms to manage voice and electronic order flow and consolidate trade reporting to regulatory systems such as TRACE as part of a robust compliance and trade performance management process.

“What we did from a Bloomberg perspective is take a strategic look at how the market was evolving and ultimately we decided that a new product was merited because new functionality had to be developed to help dealers manage pre-trade workflows,” said Biswas. “That was the genesis behind developing ETOMS as a new product to complement TOMS.

Bloomberg has launched the product initially into the U.S. regional dealer space. “This is an area where you can see high volumes of tickets, small ticket sizes; and the price-takers in these workflows are generally looking for certainty of execution as opposed to price improvement,” said Biswas. “This area is the most electronic market segment in the corporate bond world. ETOMS provides electronic trading tools designed for that market segment.”

He added, “Looking forward, Bloomberg’s ETOMS will be used by more than just U.S. regional dealers, and to trade more than just U.S. corporate bonds. We are working on extending our asset class coverage into European corporate bonds as well, and we also support government bonds today.”

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