Electronic trading has risen dramatically in Fixed Income over the last couple of years. Consequently, old-style voice trading has decreased to about 50% of all Fixed Income trading. Because numerous ECNs are providing trading platforms the liquidity of bonds is readily available. Buy-side firms now have more choices when purchasing or receiving bond quotes. As such, they no longer need the one-to-one relationship with a Sell-side bank.
Auto quoting of bond prices has also become a large presence in Fixed Income trading. “Black Box” pricing servers automatically generate prices and publish them to ECNs for the parties who request quotes. From the Sell-side perspective, this creates an interesting dilemma. How do you control your pricing margins, analyze client trading activities, analyze trader performance, maintain and grow revenues, and at the same time figure out why you are now losing deals?
InetSoft provides visibility into the “Black Boxes” and returns enlightening information to trading operations. With the InetSoft solution you can easily:
● Provide the ability to see the “request for quote” (RFQ) process flow as it unfolds
● See the hit ratios as they are occurring (by instrument type, trader, desk or any other dimension)
● Evaluate the speed that the pricing server is generating and publishing quotes (by maturity or any other dimension)
● Identify who is attempting to arbitrage your systems
● Determine which traders are outperforming/underperforming key benchmarks and help them adjust their spreads and pricing strategies accordingly
● Analyze the trades you are not winning (DoneAway)
● Analyze your “top” customers’ buying and selling behavior
Industry analysts indicate that successful electronic trading operations have a hit ratio around 35%. If you are higher or lower than this, you are most likely pricing yourself out of the market. Another success factor in Fixed Income electronic trading is the speed of the initial response to the RFQ request. Nearly all deals transacted over the ECNs occur when the initial RFQ response occurs within the 400 milliseconds.
With InetSoft you gain operational intelligence of your trading environment, analysis of trading conditions and proactive decision making during the trading day, for measurable business value and return on your investment. Consider a scenario built upon typical US Treasury trading statistics:
● $100MM average trade size
● $50 Profit on each MM traded
● 10,000 RFQ attempted per day
● 25% hit ratio
● InetSoft Solution provides a conservative 1/10 of 1% improvement
● 5% increase in performance month over month
With InetSoft, the UST desk could realize about $4,000,000 (($100MM/MM x $50) x (0.25 x 10,000) x 0.001) of additional revenue by just gaining the control and visibility over the trading environment. More returns can be gained when the action framework is utilized to detect specific threshold conditions and initiate an action. Using InetSoft you can also automatically adjust your bond pricing strategy, generating even greater revenues to the desk.
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