Constantinos Antoniades, Liquidnet
"This was a product that was designed with significant input from the buy side in order to achieve exactly what a dark pool is supposed to achieve, as opposed to taking something from a different asset class and just adding a bunch of fixed income securities in it."
When we asked experts about a dark pool for corporate bonds, one of the struggles they felt firms would face in setting one up was getting connectivity. Shortly after, Liquidnet announced that seven major order management system providers had signed on.
Automated Trader talks to Liquidnet's head of Fixed Income, Constantinos Antoniades, about the impending Q3 go-live date.
Automated Trader: Is this really the first dark pool for corporate bonds? There seem to have been other attempts in the past, with varying degrees of success.
Constantinos Antoniades: This is the first true and proper dark pool. Historically, dark pools, previously in equities, were put together with a purpose of bringing together the buy side to trade large blocks.
Everything that was done -- the protocols, the technology, the client involvement -- is to achieve that exact same outcome, which makes it in our view the first truly global institutional dark pool.
This was a product that was designed with significant input from the buy side in order to achieve exactly what a dark pool is supposed to achieve, as opposed to taking something from a different asset class and just adding a bunch of fixed income securities in it. Which is not exactly the negotiated dark pools that our clients want.
We do have the sell side involved, but (with) very different protocols than the buy side-to-buy side interaction. That is in place to ensure the full protection of the information for the buy side.
There are a bunch of other platforms that do different things, if you look at how they work and who their clients are, and what the interaction is, that is not what is considered to be an institutional dark pool.
AT: What do you say to the critics? Some people say that it is not just about giving buy side access to the blotter, that fixed income works too differently from equities for fixed income dark pools to work this way.
CA: That is a valid statement to some degree, and I was a portfolio manager (and) trader myself for many years before I started Vega-Chi.
It is worth remembering that the majority of trades that happen in the market today are driven off orders that clients have in their blotters. It is also the case that sometimes a dealer advertises an order or a block, and the trader may go to the (portfolio manager) and say would you be interested in that?
That is only a small part of what I call the daily trading activity of the top 100 asset managers who are very driven off of order management systems.
On top of that, we also offer ability for (portfolio managers) and traders to add liquidity manually in our front end that doesn't reside in the blotter. So, we cover that in any case. But at the same time the vast majority of the liquidity exchange is driven off blotters.
AT: Like what kind of majority?
CA: If you look at the top 40 or 50 asset managers in this space, their workflows are driven purely off the order management systems. Somewhere between the vast majority and 100% of their daily activity does reside in the blotter.
AT: I've also heard that connectivity will be a struggle. Can you tell me more about this latest announcement?
CA: Connectivity on a pre-trade and post-trade (are) very key. If you read the articles that have been published over the last 12 months, it is shocking how little mention is on the order management system connectivity to the clients, and the workflows of the clients.
We have more than 100 leading asset managers as clients, and they have told us very clearly what their needs are in terms of connectivity and very strongly that a successful dark pool must be fully connected with their order management system both ways. Meaning in terms of sourcing liquidity from the blotters into the pool, and then when the trade is executed for the relevant confirmations and execution details to flow back to the order management system without manual work required.
AT: What are your expectations for growth after the Q3 launch?
CA: We have very high growth expectations, both of the launch and the growth thereafter, based on where we are and what we see ahead. I think we have the magic formula to actually make this market work and tick.
(This interview has been condensed and edited)
Do you want to know more? Subscribers can access our full length feature on the changing nature of fixed income market structure here