Fixed Income Focus | Gherardo Lenti Capoduri
those three dealers will be able to quote on the bond issue sought. Clients will probably make four or five phone calls, but realistically, this process will not be as fast and efficient as the electronic route. Therefore one might say the traditional model is lagging the electronic model. Transacting over the phone also requires a significant amount of physical workload in terms of manually confirming the details of a trade – including the executed price and which dealers were canvassed for their initial quotes. In fairly rapid market conditions, price slippage could be experienced between a quote being received from a dealer at the outset and finally executed upon. Ultimately that might turn out to be a much worse execution. Contrast that with getting an order executed so much faster electronically, and with a full audit trail.
Are there any new protocols being developed to meet new market demands? The European fixed income market exhibits a different market convention to the US where trading is undertaken on a spread trading basis, as opposed to a predominantly price-based protocol in Europe. (Emerging markets also trade on a price protocol). Consequently, we are working on adapting the Market Lists work-flow to allow for these differences in trading conventions between the US and European markets. ■
Best Execution | Spring 2013 Made in Italy
Gherardo Lenti Capoduri, Head of Market Hub, Banca IMI explains why Italy is ahead of the game when it comes to best execution.
to all, quote driven, quote and order driven, auction, RFQ etc.)
(government bonds, corporate bonds, emerging market bonds, high yield, sovereign bonds, multi or single currency)
services (fact sheets on each instrument)
Back in 2007 in Italy, MiFID I came into effect for fixed income trading. As a result each Italian fixed income market began to compete against one another. The choice available included two regulated markets (Borsa Italiana-MOT segment and MTS BondVision), four fixed income MTFs (ExtraMOT, Hi-MTF, EuroTLX and MTS BondVision Corporate) and 17 Systematic Internalisers (SIs). It is perhaps illuminating to see how our fixed income markets have developed in the period following this regulatory change (see Fig. 1-2). These markets target either institutional size orders or retail size orders and within their respective spaces they compete against each other by offering members:
Following this change in market structure, brokers started to offer best execution in fixed income by adding smart order routing (SOR) to their execution policy, and their market-making desks started to access and capture available flow on several different markets. It is worth noting that brokers have striven to offer clients access to both market traded and OTC liquidity through creative solutions which aim at aggregating and normalising, as much as possible, these two very different sources of liquidity. In short, the core components of this fixed income model include: post trade transparency – all
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