The 10th annual FIX Nordic Trading Briefing 2019 opened with a keynote speech from Bente Landsnes, former CEO of Oslo Børs, who set the stage for the event by asking the question, “How many of you want to sit in the front seat or the back seat of a car?” The question was in relation to regulation, and whether or not we are coming up with solutions proactively, or just going along for the ride.
The financial industry has always been regulated in one form or another, but today there is more regulation than ever affecting the finance industry in the Nordics, and this is likely to continue particularly given the recent rise of (SI) Sustainable Investing and ESG (Environmental, Social and Governance).
During the speech, Landsnes agreed there are still many questions on what the future of banking will look like for the Nordics, particularly as consolidation continues as companies focus on reducing transaction and infrastructure costs. Landsnes ended her keynote address by posing the question again with a call to action, “Are we relying on self-regulation or are we going to take charge in the front seat and work in collaboration across the industry to meet the requirement for regulation?”
The Rise of ESG and Responsible Investing. What’s the impact for Nordic Asset Management?
Moderator: Rebecca Healey – Co-Chair EMEA Regional Committee & EMEA Regulatory Subcommittee, FIX Trading Community, Head of Market Structure and Strategy, Liquidnet
Speakers: l to r: Carina Silberg – Head of Sustainability, Alecta; Kristin Wallander – Senior Sustainability Analyst, Swedbank Robur; Fong Yee Chan – Senior Product Manager Sustainable Investment, FTSE Russell; Torun Reinhammar – Senior Account Manager Investor Engagement, CDP
The morning followed with the session: “The Rise of ESG and Responsible Investing – What’s the impact for Nordic Asset Management?” Today, more companies than ever before are looking to ensure they meet customer demand to invest in companies with a stronger focus on Environmental, Societal and Goverance factors; shifting ethical investing from banning “sin stocks” to more sustainable business strategies for a carbon neutral world. The question for the industry is what happens when what has been a stand-alone niche investment strategy moves into the mainstream investment process – not just in Europe, but increasingly across the globe.
Implementation of ESG and RI (Responsible Investing) does not come without its challenges. For example, the data which asset managers now need differs to that of traditional data providers. Rather than standard financial data, firms need to collate information on factors such as a company’s carbon footprint, workers’ rights, board diversity, web traffic, social media commentary, NGO reports – this information is often not easily available, difficult to collate and clean. Information has to be updated frequently to ensure firms are certain there is no risk of “green washing”. Tracking performance with the lack of global benchmarks as well as varying approaches between different asset managers as to what ESG, SI or RI are to reference. The panel concluded there is an urgent need for improving the current data and for the industry to come up with guidelines for best practices to standardise data provision and performance monitoring.
Transformation of Fixed Income Secondary Markets
Moderator: Brett Chappell – CEO, Dubhe Merak ApS
Speakers: l to r: Lars Andreas Loewe Loetvedt – Portfolio Manager, Nordea Investment Management; Umberto Menconi – E-Commerce Sales Market Hub, Banca IMI; Jakob Bendiksen – Senior Portfolio Manager, Danske Bank Asset Management
The afternoon session was on the transformation of fixed income secondary markets, in particular looking at the post MiFID II effect. The growth in electronic trading has intensified with daily electronic tickets having risen in multiple 1000s of tickets, and as a result there has been an explosion of data now available. Panellists acknowledged there was a lot more data which has now become available through the APA’s (Approved Publication Arrangement), but the issue of data aggregation and accuracy continues to be a concern.
Another topic discussed on the panel was the power the buy-side now have on becoming liquidity providers as well as liquidity takers. The consensus on the panel was that buy-side firms are seen as providers of liquidity in their local markets but still act as market takers on other European markets. There has been a growing interest in EMS’s (Exchange Management System) as a result, and the ability to use an EMS will allow for direct connectivity to publish orders and receive RFQs. The panellists also felt EMS’s would help with data aggregation and calibration, which in turn would improve pre-trade transparency.
The Fixed Income session evolved into a discussion on the performance and measurement of TCA (Transaction Cost Analysis). Best Execution under MiFID II is not about getting the best price but the best process. It does not only involve the use of data to meet the regulatory needs, but also to evaluate the best execution process. The current approach has been derived from an equity model, but as fixed income is renowned for a principal-based market and trades in size, the discussion centred on the need to use a model defined specifically for fixed income best execution. There are still many portfolio managers conducting their own trading and there has also been a shift in the buy-side holding more liquidity than ever before – both of which will need to be considered when defining fixed income best execution.
ESMA has identified there are only a little over 950 bonds deemed to be classed as liquid from a universe of over 300,000 bonds. As such, there is a real demand to define the market data for fixed income – something which could be achieved by segmenting the bond universe. The comparison for like for like in a fragmented fixed income market remains a concern, and asset managers are not only expected to prove best execution, but more importantly, to demonstrate what processes they use to meet their best execution requirements.
Moderator: Matthew Coupe- Co-Chair EMEA Regional Committee & EMEA Regulatory Subcommittee, FIX Trading Community, Director, Barclays
Speakers: l to r: Magnus Lindeloef – Product Manager, Infront Finance; Marion Leslie – Global Head of Enterprise, Refinitiv; Markus Mild – Regulatory Strategy & Compliance Analyst, Nasdaq
The later session wrapped up with a panel on the Consolidated Tape (CT). Panellists agreed that it will become crucial to define what a Consolidated Tape should achieve. Is it to create a use case for best ex? TCA? Market transparency in non-equity markets? There was an underlying concern around building a CT without having a clearly defined purpose.
The discussion continued around the quality of the data which exists today following MiFID II, which was a common theme throughout the day. There was talk around what market data is available and the quality of it in its raw form, and who is responsible for ensuring the data is cleansed and defined. For example, the APA’s are not taking it upon themselves to clean the data, making it important to look at the original source of where the data came from. The panel concluded that identifying a golden source of data will remain crucial to the success of a Consolidated Tape. Ensuring the data is cleaned at the source with a set of standards such as the FIX MMT Flag will be important in order to help ESMA to form a CT that the industry can easily adopt.
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