I Am Not Throwin’ Away My Spread!

Why Fixed Income Markets Need to Pay Homage to US Founding Father Alexander Hamilton.

I am not throwin’ away my spread! 
I am not throwin’ away my spread! 
Hey yo, I’m just like my market Aggressive toward a target
And I’m not throwin’ away my spread!

The market makers got knowledge 
Buy side building there a new cottage 
Where the broker has been to make profit 
After D. Frank slowed me to a near stoppage
So now I need systems with enough wattage

To help me see where there is liquidity 
Looking at prices for opportunity 
While government regulating endlessly 
And FINRA proposing Treasury transparency
Can’t you see? Markets are practically on ecstasy!

Everything is going ‘lectronic at a pace that is sonic 
No need to moan, but I used to just pick up the phone 
Ecosystem is feeling like Thunderdome
And changing faster than I can text it…

Enter Brexit…

And behind that is Trump…and likely interest rates jump
 I could give futures a pump, but this could just be bump
Now what it takes for me to get some In this new world of Fixed Income Is so complex it’s making me numb
And I can’t afford to be dumb

So I got to go, can’t be slow 
I need to know about every flow 
No time to be soft or I may get picked off 
Feel like I’m always on a ledge in the dark
Hope to get my hedge — can’t have my order park

I am not throwin’ away my spread!

Channelling my best Lin-Manuel Miranda (that clearly could have gone on much longer), but it seemed a fitting tribute to US Founding Father, Alexander Hamilton, as Corvil announced last week a new solution for global Fixed Income market participants which improves electronic execution quality and reduces market and operational risk.

At age 32, Hamilton became the first US Treasury Secretary and essentially designed the US’s financial system. Hamilton joined Washington’s cabinet in 1789 at a time when the government had accumulated $54M in war debt plus an additional $25M owed by the states. His economic plan assumed state debt, and made the US the best credit risk country in the western world. Today, the multi-trillion dollar US Treasury market is the global benchmark for debt.

Arguably, only a few times in history have markets been more in transition than global Fixed Income markets are today. We are exiting the longest peacetime period of constantly low interest rates and expecting to see multiple rate increases over the next twelve months. We are awash in geopolitical uncertainty amid Brexit, Trump, and shifts in the Asia Pacific region. Government regulation is at an all-time high and new European regulations pending in MiFID II. Traditional buy-side and sell-side roles are changing, electronification is on the rise, and market structure changes are happening all around.

As has always been the case in great shifts (e.g., Industrial Revolution, Internet, etc.), innovation and technology are serving as great enablers.

Corvil Analytics for Fixed Income is one such enabler — both for the changes taking place today as well as those that are likely in the future as Fixed Income markets continue to evolve.

Participants are challenged to gain the necessary visibility from their trading and integration systems today. They are faced with stale quoting, missed trading opportunities, missed prices, higher costs, compliance challenges, and hung orders, all of which can have a material impact on both the performance of the overall business and individual clients, desks, and reputation.

Corvil provides a unique participant-centric view of all activity across markets, empowering firms with the insight to optimize business performance through better servicing of desks and clients, trade strategy adjustment, and technology optimization.

Corvil provides a real-time granular view into the lifecycle of every transaction and a correlated picture of several key dimensions: overall trading business volumes, counterparty activity, trader and client experience, and underlying technology platform performance.

Knowing what action to take is dependent on the ability to look at individual transactions and these multiple, correlated dimensions. It is very challenging to know where to take action to alter performance. As individual desks and clients are looking for increased transparency, Corvil satisfies this need.

Leveraging the strengths of Corvil’s core platform, Corvil’s Fixed Income solution provides an independent view of all trading, including capturing precision-time stamped details of every order for use in meeting new regulatory obligations such as those under MiFID II or the SEC’s recently approved proposal for Treasury transaction transparency.

In his article earlier this year, Larry Tabb notes, “The challenge with radically altering market structure, without detailed analysis and care, is that market structure change will first be absorbed by liquidity providers, followed by sophisticated investors, brokers supporting these most sophisticated clients, and finally, the vast array of less focused investors. This means that the sophisticated traders will reap the benefits of major market structure change long before the investors figure out how they are being disadvantaged in the new market structure.

Larry goes on to say, “It is just the law of the jungle that people with their own money at risk tend to focus more acutely on preserving it. People targeted directly by predators tend either to develop the most sophisticated defenses, or perish. It’s not complicated; it’s just survival.

While the markets are not necessarily as dangerous as an unprotected stroll in the jungle, it pays in either circumstance to understand the terrain, know the predators from the prey, and come equipped with the appropriate gear.”

In markets where those who have the best information and react fastest outperform, Corvil is providing a solution to close part of that gap between participants.

Capital Markets and Participants have always been resilient and adapted as needed to create returns for shareholders. When pressured, like water to the lowest point, technology innovation and intelligence have helped find a way. Based on strong feedback and realized results from customers, Corvil is excited about this solution and the continued investment therein to help price makers and price takers in this rapidly changing market to “not throw away their spread!”


Originally published at corvil.com.

By David Murray

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