Portfolio Trading Q&A

This Q&A with The Desk looks at the growth of PT, how workflows differ significantly across different types of bonds and venues, the need for technology to manage PTs, and what the future looks like.

A few excerpts -

- "Each venue typically splits portfolio workflows into two types – one with traditional price types such as price, yield or spread and the other where bonds are priced at a spread to a reference price of some kind. Reference price sources can be an index such as BVAL, the dealer’s own pricing or even a custom source specified by the client."

- "Dealer workflows are also complicated, as they need to quote and book trades that are multi-directional, multi-currency, and can be a combination of price types."

- "API behaviors also differ, in some cases significantly. Some venues, as you would expect, follow All or None workflows while other venues have a hybrid All or None/Non-contingent model where the venue allows a Dealer to price a subset of the PT. This gives Dealers the opportunity to quote most of the portfolio but not quote on any bonds where perhaps they don’t hold inventory or don’t have credit available. Using this workflow, the client can then choose to hit a subset of the quotes if they wish."

- "Managing PT using manual workflows is not sustainable, especially as PTs are often concentrated around month end or quarter end. Volumes are growing, and workflows are complex. Quote analytics are improving, putting pressure on accurate and competitive pricing, and market velocity is increasing as more data becomes available. This means that the first one or two PT quotes received from Dealers with consistently competitive pricing are likely to win the trade, whereas quotes from Dealers which price manually (and more slowly) may not even be seen by the client.

Without technology, pricing is done in one system, booking in another, and reporting in a third. Add to that the rekeying required to demonstrate best execution, timestamps, reconciliations, and audit trails."

- "This is largely a client driven initiative, so Dealers looking to capture flow will continue to support it. But they can only manage volume by using technology to automate routing to different desks, for quoting, negotiation, booking, risk management and reporting."
 

Free to read at The Desk - https://www.fi-desk.com/transf...