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Impact Investing

IPE special report May 2018

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Automation to facilitate buy-side empowerment, liquidity – Euronext

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Institutional investors will be able to work on a more level playing field with the so-called sell-side and have a “huge opportunity” – in light of the increase in automation and available market information – to “take more control” in future, according to Danielle Ballardie, head of cash markets at Euronext.

“The push for pre and post-trade transparency that is going to become compulsory, under certain conditions, under MiFID II will certainly support the automation of the whole fixed income trading value chain, as compliance will be difficult to respect with manual processes,” she said.

She said requirements surrounding credit ratings would also have a “major influence” on the assessment of which bonds to trade and how to trade them.

She argued that this would end the traditional disparity in “sophistication” regarding access to market data and platforms, as the buy-side today holds a “significant majority of inventories and are launching or participating in initiatives aimed at giving them a more automated, electronic access to data and markets”.

Further, investors are increasingly realising the “value of the information held in their own systems and trading interest – both actual and historical”.

Additionally, more and more banks are offering agency brokerage services, which levels the playing field even further, she said.

Ballardie added that, if a high number of buy-side companies were connected to the same large pool of liquidity, there would be more buy-side to buy-side trading, and this would “help deepen liquidity, which is increasingly important, as liquidity provision is drying up among the sell-side dealers”.

According to her, the role of the market maker is changing “as the buy-side adapts and has the opportunity to take greater control over execution”.

The major challenge remains the sourcing of block liquidity, but Ballardie predicted that ‘dark pools’ would become more effective for trading blocks.

These ‘dark pools’ – i.e. banks’ own trading pools – are now often made available to investors in exchange for the buy-side’s own algorithms. 

“There is an increasing focus on innovation-seeking solutions to ensure there are good mechanics for large deals,” she added.

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