Availability of liquidity continues to be a key challenge for traders, according to the fifth annual JP Morgan FICC eTrading survey which polled 260 fixed income, currencies and commodities (FICC) traders in December 2020.
The study revealed that their main criteria when selecting a liquidity source also remained the same – price consistency, availability during volatile markets and response time – as in the previous year’s survey.
Banks were ranked first as the top liquidity source for traders for a second straight year by 88% of respondents, with 32% listing non-banks and just under a third ranking listed exchanges.
Liquidity concerns were followed by workflow efficiency and remote working which is not a surprise given the impact of the pandemic on trading floors and the ensuring widespread lockdowns that started last year.
The survey found that 77% of respondents said they worked from home between March and June 2020 for an average of four days a week, with 21% reporting a change in their execution style. Many cited increased electronic trading.
For 2021, 55% said they expect to work from home for an average of four days a week, with 18% noting that their execution style could continue to change going forward — again mostly through increased electronic trading.
“This is really interesting because it is something we anecdotally know,” said Scott Wacker, head of FICC e-commerce sales at JP Morgan.
He added, “So if you think about that, if they are going to be working from home, then remote working capabilities, access to data, electronic trading are going to be more important and that’s what we saw in the survey.”
Trader rated the ease of use or workflow efficiency/straight through processing as the most important data source to support execution followed by pricing sources, dealer performance metrics and axes history.
Also, on the list were post trade transactional data and API liquidity aggregation and metrics provided by an execution management system solution.
Looking at themes that will have the biggest impact on markets in 2021, 42% ranked the global pandemic as number one, followed by market and economy dislocation.
In terms of innovation, mobile trading applications were expected to have the most influence in shaping trading in the next 12 months, with artificial intelligence (AI) and machine learning taking over in the next three years.
Rate traders anticipated the biggest increase in electronic trading volumes over the next two years. They estimate it will account for 53% this year and 67% in 2022. This reflects the increase in electronic trading in bond markets last year due to Covid-19.
“Given the more turbulent markets of the last year it’s not surprising that liquidity and workflow efficiency are the top daily challenges for traders,” says Vuk Magdelinic, CEO at Overbond. “What is surprising is that only 19% predicted AI and machine learning to be the most influential in shaping the future of trading.”
He added, “Greater workflow efficiency and better liquidity scoring in the fixed income markets can only be achieved by automating a greater percentage of trading and reducing the amount of time spent on decision making. This can only be done by aggregating the vast amounts of pricing and liquidity data across different trading venues and then utilising AI analytics to reduce trader supervision to one touch, or even better to no-touch trading, which in turn frees up time for further idea generation.