Innovation in the age of electronic fixed income trading

“Data analytics and artificial intelligence are changing the face of financial markets, and fixed income is no different. With the right tools, insight into liquidity can be unleashed to huge advantage.” - Fabrizio Testa, MTS

Q&A with MTS CEO Fabrizio Testa

What trends have characterised the bond markets that MTS facilitates over the last year?

The seismic shift towards electronification continues to be the overarching trend in fixed income, as firms seek greater efficiency, reduction in manual processes, regulatory compliance, streamlined workflow, more accessible and meaningful data, and better access to liquidity.

This shift has also been driven by the impact of the pandemic on market volatility over the past 12 months, and the simple fact that most traders were working from home and needed to be able to transact on firm prices quoted on a screen.

As a result, we have seen a significant uptick in trading across the electronic markets we facilitate.

How will MTS customers benefit from the recent acquisition of MTS by Euronext?

Joining forces with Euronext delivers many benefits to MTS customers, as well as to other stakeholders and the MTS team. The transaction marks a pivotal moment in Euronext’s ambition to further build the backbone of the Capital Markets Union in Europe and to expand internationally, and we are excited to be part of its mission.

The commitment of Euronext further strengthens our European roots and provides a springboard for MTS’s continued international expansion as we share common values, including client centricity. We will build on our position as a leader in fixed income markets by growing our product range, expanding the segments of the markets we serve and our geographic coverage to better serve our clients.

How is MTS supporting fixed income participants with innovation in these challenging market conditions?

Fixed income is changing at a rapid pace globally, and MTS is leading this evolution with our talented international team and diverse ecosystem of partners, including large banks, regional banks, DMOs, central banks, hedge funds and asset managers. This evolution is being driven by regulation, competition and the demand for electronic trading, automation, STP and increasingly sophisticated requirements from all our customers internationally. This combination has created the perfect conditions for innovation.

Electronic trading is our core business and MTS has been providing fixed income clients and stakeholders with advanced solutions across primary and secondary markets since 1988 when MTS – the first electronic bond market – was launched by the Italian Treasury and Bank of Italy. Since then, we have expanded our footprint to offer orderly electronic markets across Europe and beyond, facilitating collaboration between governments, DMOs and regulatory authorities to the benefit of the industry overall.

Our continued focus to improve the fixed income market infrastructure has allowed us to offer increasingly deep liquidity and attract diversity in counterparties. We work closely with the relevant authorities and cater for all investment needs with a choice of order driven, quote driven and RFQ trading protocols through MTS Cash and MTS BondVision. Our purpose goes beyond outright cash as we understand the importance and complementarity of funding which we support through MTS Repo, MTS Depo and MTS BondVision Repo.

We have also focused on creating connectivity and further building on electronic liquidity in credit markets with our global network of customers, through RFQ on MTS BondVision and the riskless principal model of MTS BondsPro, available 22 hours a day.

How is demand for data changing amongst fixed income participants?

High quality market data provides a compass to navigate unchartered waters, such as those in which the global financial services industry currently finds itself. Dramatic levels of volatility have led to record data usage, as participants look to trusted, verifiable information to support critical trading decisions.

The last year saw a sharp surge in requests for access to high quality data. In particular, participants have been seeking to expand the range of firm sources from which they receive data to act as a benchmark for trading decisions.

To operate effectively in volatile markets, participants need trustworthy data sources that provide detailed coverage of the markets in which they trade. Nowhere is this need more pressing than in the European government bond markets.

Against this backdrop, the ability to access real-time and executable prices from a broad range of markets is more essential than ever, helping participants to build a better picture of price formation to inform effective trading strategies.

How is MTS responding to this growing demand?

MTS offers a unique combination of high quality, detailed data packages via API as well as an advanced trading GUI that displays real-time price information direct from our leading interdealer European government bond markets.

We are seeing continually increasing demand for data across our markets because of the greater electronification and sophistication of our customer base. We have responded with various enhanced data products, including low latency tick-by-tick, to meet growing data and analytics needs, with much more to come through our own R&D and partnerships.

Our BV Composite offering aggregates the latest real-time quotes received from our extensive network of BondVision dealers. It is designed to provide an accurate indication of market level for EGBS, Gilts, SSAs, and covered bond sectors.

In the swaps market, we have partnered with TraditionDATA, the data arm of Compagnie Financière Tradition, to create a new data service that consolidates MTS’s French, German, Italian and Spanish government bond data with EUR interest rate data from Tradition’s OTC derivatives trading platform, Trad-X, to produce related Asset Swaps.

The scale and importance of the global swaps market means that traders and issuers need to be confident in the data they receive. This collaboration offers improved pricing derived from our respective live order books and ensures traders and issuers have robust and accurate pricing to support their activity more effectively.

How is MTS meeting the need for low latency data, which you just mentioned?

Low-latency market data is now firmly established as a critical component of today’s fixed income markets, enabling participants to feed trading strategies and meet best practice requirements.

To this end, we recently launched MTS Alpha, a real-time unnetted and ultra-low latency tick-bytick price feed for bond future deliverables that hit the MTS Cash markets in France, Germany, Italy and Spain. MTS Alpha is unique in that it sources prices from cash order books across Europe. Users can analyse price impact and liquidity formation in the cash and futures market as well as react to movements in levels of liquidity.

In addition, the MTS Co-Location Service offers the ultimate option in terms of low-latency connectivity. It allows customers, including market participants, market data users and authorised network service providers, to host their servers within the primary data centre of MTS, thus putting them as close as possible to trading and market data systems.

Advanced analytics capabilities are increasingly important to market participants. How are you supporting customers in this regard?

Data analytics and artificial intelligence are changing the face of financial markets, and fixed income is no different. With the right tools, insight into liquidity can be unleashed to huge advantage.

To address the increasing needs for liquidity assessment within the bond markets, MTS and Yield Book recently introduced a collaborative set of pre-trade and post-trade analytical measures for the European government bond market.

The service combines MTS’s wealth of pre-trade and transactional data with Yield Book’s advanced analytical models, to help clients with their liquidity risk research and decision-making needs.

Originally published by The DESK