With fixed income markets evolving towards electronic trading, Bloomberg announced Electronic Trade Order Management Solution or ETOMS, a new managed service for US regional broker dealers to access multiple fixed income electronic trading venues and automate trader workflows.
As regional broker-dealers rely less on their own inventories of bonds to fill client orders, ETOMS allows US regional broker dealers to access liquidity in corporate, municipal, and government bonds across different ATSs and liquidity pools. Bloomberg estimates that 18 percent of U.S. corporate bond trading is electronic, while the figure for US government bond trading is closer to 30 percent. As a result of these trends, traders are looking for technology to interact with electronic markets and for tools to automate the higher volumes of small trades.
“ETOMS is a solution for US regional dealers that gets them connected up to the fixed income electronic markets, so it lets them execute more electronic trades and at the same time, provides them with the trading tools they need to interact with the market,” said Sunil Biswas, global product manager for Bloomberg, ETOMS, who is also global product manager for TOMS, Bloomberg’s order management system head of TOMS product development at Bloomberg, in an interview.
Smaller Ticket Sizes, Higher Electronic Volumes
On the back of the financial crisis and new workflows driven by regulations, Bloomberg saw a need for a dedicated product to address electronic trading. While 60-to-70 percent of the average dealer’s business is voice-based from a notional basis, the number of voice trades has dropped dramatically in terms of numbers of trades, according to Biswas. And, while ticket sizes have dropped, the volume of small trades executed electronically has surged. “One of the reasons is that automation allows firm to process more transactions,” said Biwas.
“The financial crisis has been a catalyst for the evolution of electronic trading,” said Biswas. Dealers acting as market makers are keeping fewer bonds in inventory and are going to the electronic markets to view that liquidity in the form of price taking or liquidity taking workflow. Another trend since the financial crisis is transaction sizes have decreased so that traders are “ETOMS plays into that electronic trading world,” said Biswas.
As the ability to generate revenues from market making activities has deteriorated, to some extent market makers have been utilizing an agency model to execute client order flow. Historically, these orders were filled out of inventory, but in today’s world of capital concerns, dealers are using the agency model to charge a commission or charge a markup, he explained.
In addition to connecting US regional dealers to 15 electronic trading venues in the United States, ETOMS helps dealers aggregate liquidity and automate pre-trade workflows, such as price generation, trade negotiation and distribution of quotes out to electronic markets. A typical client will have Bloomberg Professional Service on their desk and will be able to trade through Bloomberg’s FIT liquidity pool, along with other sources, such as Knight Capital Group’s BondPoint, Bonds.com, MuniCenter, Tradeweb Retail, NYSE Bonds, among others. Without liquidity aggregation, traders might have six or seven different markets up on their screen. “What ETOMS allows you to do is replace the individual views and have an aggregated view of the market,” explained Biswas. It also helps them handle “the act of engaging in trading on these markets and all the automation and algorithmic modeling that goes in to this space,” added Biswas. Heads of fixed-income desks who are conscious of how much client business they are doing can also take advantage of client metrics and performance tools to measure their hit ratios and gauge how much business they are actually winning.
More than ten regional dealers in the U.S. have been using the product for the past six-to-nine months. Dallas-based Southwest Securities, uses Bloomberg ETOMS to manage electronic inquiries and orders, automate price quotes and connect to fixed-income liquidity venues.
In Southwest’s case, it’s possible to use Bloomberg TOMS and ETOMS as a combined solution to manage both voice and electronic order flow and to consolidate trade reporting to regulatory systems like TRACE as part of a compliance and performance management process.
Early Adopter: Southwest Securities
“We use Bloomberg TOMS and ETOMS to aggregate liquidity from across the fixed income universe and manage our electronic order flow, inventory and risk exposure more efficiently,” commented Daniel Leland, EVP of Southwest Securities in the release. “Bloomberg ETOMS connects us to diverse liquidity sources and automates trader workflow so we can focus on providing our clients with best execution,” he said.
Southwest is among the early adopters of ETOMS and is one of the larger regional dealers that provided positive feedback on the tool as it was in development. The regional broker-dealer acts as a liquidity provider to the street. It generates its quotes on ETOMS and sends them to the market. Clients see the prices on the market and initiate an inquiry, explained Biswas.Since a trader has to respond to each order that comes through, if a trader gets one order every minute, that's manageable, but if a trader receives one order every 10 seconds, then he/she is looking for a machine to respond. ETOMS provides trading automation with rules that can respond to a customer based on the trader's parameters.
One of the advantages of ETOMS as a managed service for regional dealers is that Bloomberg manages all the physical technology, machines, networks and bandwidth. This is useful for disaster recovery type of situations as well, noted Biswas. “All of the commoditized infrastructure technology we manage for the client, which means the clients can manage their attention on the differentiating features locked into their intellectual capital,” he said.
With the movement to electronic fixed income markets, ETOMS also the traders manage client orders at the speed at which the business moves. “Historically voice trades are executed at the speed at which humans can type and talk, but as soon as you embrace electronic trading, the speed goes up,” said Biswas. “The sort of tools that the dealer desks need are evolving and it’s into this evolving world much driven by regulatory concerns, that ETOMS comes in,” he said.
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio