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Spotlight-blackEnabling Platforms For Fast Markets (more stories)

08 February 2013

Fitting a Square Peg in a Round Hole: Adding Trading Functions to RFQs in Credit Trading

Credit risk transfer is a heady business, and it often is challenging to get trades done. A buy-side EMS for credit trading can help by providing more tools, aggregated liquidity, and all your trading counterparties on one screen.

Remember being so proud of your little one for fitting the square peg into the square hole? The kid’s a genius, everyone said. Grown-up work is not that different. You have tasks to perform and tools to get the job done. The main difference, other than more gray hair, is that your tasks vary widely now and kind of a lot rides on successful performance; kids grow up, after all.

Credit risk transfer is a heady business. Liquidity is fragmented and can be scarce. There are so many Cusips to deal with. There are so many trading counterparties to deal with. There is a constant stream of new pitches coming at you. Everyone wants your business, yet it takes longer to get trades done. Some trades are small, and some are big. Some are liquid issues, and some never trade. Some inquiries get no responses, and some a plethora of responses. At times it may feel like you’re trying to fit a square peg into a round hole, a square hole and a triangular hole. You need more pegs -- more tools.

The buy-side EMS for credit trading gives you more tools, aggregated liquidity, and all your trading counterparties on one screen.

Why use RFQ on small lots when you know you’ll get tepid response and it just eats up your day? The buy-side EMS allows you to click to trade on live prices from your dealers or any number of electronic venues, and even color codes the field to show where available liquidity meets your size. That gets lots of line items done right away.

[Related:The Future of the OMS & EMS: One System to Rule Them All?”]

Why not take it a step further? If your PM’s target price and size are met by available liquidity, auto-ex that trade. That saves you from making the call to your salesperson about why he couldn’t find the time to make you a price on 250 bonds. You may sympathize with your salesperson’s predicament, but you still need to get that trade done.

Why use RFQ on bonds that barely trade when you know dealers aren’t putting out electronic markets and you can hardly expect a response? Well, it’s because you only have a square peg. The bond is illiquid, but you know where it should price. The buy-side EMS allows you to post that price yourself. By posting this price with your dealers, you are leveraging their customer distribution networks and extending your liquidity reach exponentially. You’re also giving your dealer that much more business, and that matters when it comes to new issues; plus, you need to get that trade done. How many thousands of other buy-side firms will get to see and trade on your price by leaving a market through your dealers? That’s a big number and a discussion unto itself.

Use RFQs in a more disciplined way. Use RFQs when fitting the square peg into the square hole. Get all the tools you need in the buy-side EMS for credit trading.

Spotlight-white-trans For more stories in the Enabling Platforms For Fast Markets Spotlight Series click here.

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2 Comments to "Fitting a Square Peg in a Round Hole: Adding Trading Functions to RFQs in Credit Trading":
  • Anon_avatar
    Anonymous

    12 February 2013

    Trouble is there are any great EMS's for this type of bond trading

  • Missing
    stusanderson

    12 February 2013

    But there is a buyside EMS for credit trading now.  Click on the banner add for Creditstation on the Tabb Forum page or go to www.interdealer.com.   

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