New big-data technology may help solve bond liquidity issues for trading on secondary platforms.
Ian Russell, head of IIAC, the industry association for investment dealers, says “liquidity intelligence” is making its way onto trading platforms. He reported the development in an IIAC newsletter this week after attending the International Capital Market Association conference in early May in Luxembourg.
“The biggest transformation on now underway in secondary markets is the phenomenon of ‘liquidity intelligence’, which merges the trading platform with big data,” Russell says.
The software has the predictive capability to track continuous bids and offers and to identify sources of liquidity for specific bonds. He says fintech startups Algomi and Mosaic Smart Data “are on the front lines” of the emerging technology.
“These electronic platforms provide buyers and sellers in specific securities with the precise location of pools of liquidity scattered around the bond markets, harnessing trading technology with big data and algorithms to make financial trading connections,” Russell says.
Central banks have expressed concerns about bond liquidity during periods of market stress—particularly in the repo markets that supply “financial plumbing” to banks and investors.
“There seems a consensus, even among regulators, that liquidity in repo markets are particularly vulnerable to market shocks, noting the seize-up of markets related to concerns over the outlook in China in January 2016, and a similar seize-up for other reasons at year-end 2016,” Russell says.