Industry outlook

Part four

The vast majority of respondents say improving risk management is a top priority

What are the three biggest priorities for your fixed income desk in 2019?

I’m surprised that risk management is still the priority considering that it has been a focus since the crisis. It begs the question of whether this could show a focus on how the business interacts with Compliance in order to improve policies and procedures to lessen the burden on the business

– Alvin Burgos, Independent Expert

Portfolio managers have found themselves in a highly cost-pressured environment, meaning they have to take more risks to generate more money. As a result, mitigating risk is front-ofmind, and firms are starting to explore new routes for this.

– Lauren Harrison, Conference Director, Fixed Income Leaders

Respondents were asked to select all that apply

Complying with regulations is a key challenge for 85% of Heads of Trading surveyed

What are the top challenges your fixed income trading desk is facing in 2019?

With multiple markets under the fixed income umbrella, regulatory requirements are constantly changing and rarely in a uniform way. Addressing regulatory change requires a significant amount of resources because it touches so many different parts of the firm including operations, technology, and legal.

– Alex Sedgwick, Market Structure and Electronic Trading Consultant,Fincisive Strategies

With ever-changing regulation, the focus continues to be on how the desk can adapt to changes in personnel, technology and interactions with other market participants.

– Alvin Burgos, Independent Expert

Globally, the market is still dealing with a backlog from MiFID II. The effects are ongoing, but it’s still unclear whether the initial intent of increasing market transparency and access to data has actually been achieved. Old regulations such as Dodd Frank are coming up against new technologies, and navigating the new landscape with these regulations is going to be a challenge.

– Lauren Harrison, Conference Director, Fixed Income Leaders

Respondents were asked to select all that apply

When it comes to automation, 31% of respondents feel that they’re late to the game

How do you feel you compare to your peers with respect to automation technology adoption?

Automation is challenging because it ultimately rests on the buy versus build decision. Building is resource intensive, but you’ll have a more transparent tool tailored to your existing workflow. If you buy, you’ll need to make a more substantial investment in monitoring third-party tools and adjust your workflow. Expect to see a combination of the two as the market evolves.

– Alex Sedgwick, Market Structure and Electronic Trading Consultant, Fincisive Strategies

Automation will be product dependent. Although it may reduce strain on resources, there are still many open questions regarding implementation and compliance, as this is a relatively new phenomenon.

– Alvin Burgos, Independent Expert

64% of Heads of Trading surveyed prefer to work with brokers who are principle rather than agency

When partnering with sell side do you prefer to work with brokers who are principle or agency?

These responses largely reflect the percentage of the business that is high-touch versus low-touch. The need for capital is dependent on the type of trade and since bonds often don’t have a two-way market in block size, capital commitment is more important. The breakdown here reflects the extent to which block trades still make up the majority of traded volume.

– Alex Sedgwick, Market Structure and Electronic Trading Consultant, Fincisive Strategies

Preference for principal or agency depends on the nature of the trade and where we are able to source best execution. Generally speaking, we prefer agency brokers when trading listed derivatives and principal when trading OTC.

– Tracy Rucker-Wilson, Global Portfolio Risk Manager – Fixed Income, Vanguard

It is surprising to see agencies with such a high percentage, particularly if you consider the perceived benefits of using a principal for transactions from a business and Compliance perspective.

– Alvin Burgos, Independent Expert

The majority of respondents are keen to trade in both Emerging Markets and Fixed Income Derivatives, but struggle to do so

Is there an asset class you would like to trade but struggle to do so?

Emerging markets is a totally unique asset class, traders are dealing with banks they don’t recognize, regulations they’re unfamiliar with and a whole new set of risks. Essentially, they’re going into these trades blind, so they need a platform that has contacts in those regions. Trades take a lot longer in emerging markets, but if you get it right it can be a really lucrative opportunity.

– Lauren Harrison, Conference Director,Fixed Income Leaders

Emerging Markets remain the last frontier due to their volatile nature and lack of pre and post-trade transparency. Derivatives also have some operational aspects (documentation, processing, etc.) that pose some difficulties for firms.

– Alvin Burgos, Independent Expert

Respondents were asked to select all that apply