Hidden away on the West Coast a very different version of events was unfolding as the market went into meltdown. A systematic credit investor had combined secret sauce with a highly effective liquidity aggregation tool called TradeSmart. Now Fixed Income aggregation tools are nothing new and some very smart investors have even built their own. This one however takes data aggregation and real market intelligence to an entirely new level.
This latest version of TradeSmart has an almost limitless capacity to gather highly relevant user activity data with incoming all to all liquidity requests from the big trading venues. It works especially well when the market is in free-fall, dealers have reduced their liquidity provision and there is a heightened need from other buy-sides to trade.
It turns the buy-side user into a super-efficient and precise price maker, able to take advantage of market instability. A reactive and from what we hear, highly profitable exploitation of “price-taker” buy-sides who cannot operate as opportunistic price provider. The reactive, buy-side price maker now becomes the market price setter and is compensated through propitious trading activity.
It looks to us at TS that the buy-side credit world could now be on the threshold of an evolution into a broader pool of diverse liquidity, consisting of an elite group of enlightened buy-side traders and some very effective trading technology. We have the statistics to support this whereby it is quite obvious that putting a bid on a buy-side RFQ that has been rejected by the dealers can be highly profitable if the reactive buy-side bidder has the full spectrum of market interactions displayed to them ensuring that their price is competitive, but highly profitable.
Equipped with this type of pre-trade market intelligence one wonders how long this apparently unfair advantage can persist before everyone else catches on. It is a little like the early adopters of any new technology. Only a very small number of curious and enlightened users start the movement. They are then followed by a group who need a higher level of business case justification to obtain internal approval for such a bold initiative. The last group join when most of the advantages have been extracted, but they simply catch up with the rest of the community.
If you feel you are capable of becoming a reactive buy-side price maker and you want to join the early-adopter group please join us in San Francisco in April for a select gathering to explore the benefits of the evolution.