More than the sum of its parts: Cross-asset electronic
trading

Across the industry, demand for cross-asset electronic trading (XAET) is rapidly increasing. This paper offers a look at how XAET works as it moves from trading desk to implementation, and what happens along the way.

Views expressed are those of the authors and are subject to change. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional or institutional investors only.

Key points

Our Cross-Asset Electronic Trading Group seeks to:

  • Harness a combination of cross-asset expertise and integration with innovative tools to maximize client outcomes in trade execution.
  • Automate “low complexity, high liquidity flows” across asset classes, creating capacity for traders to focus on “high complexity, low liquidity” order flow.
  • Increase direct connectivity with counterparties, particularly in relation to streaming prices, access to central risk books, and use of innovative algorithms.

Our Trading Data Analytics Group seeks to:

  • Incorporate pre-trade, live-dynamic, and post trade data and analytics into trading life cycles, providing a continuous feedback loop as well as insights that help inform future trading decisions.
  • Reduce transaction costs by utilizing a blend of proprietary and third-party analytics to deliver actionable research targeting specific areas in the order life cycle.
  • Foster an environment of continuous improvement in our execution quality, efficiency, and scale, all in support of our best execution process.

Why cross-asset electronic trading?

As part of our strategic planning for 2016, we identified data, analytics, and automation as areas of heightened focus and investment for Global Trading (GT). Specifically, we sought to improve impact on efficiency. Two essential components of this objective are automated low-complexity flow, along with increased capacity, which allow traders to focus on high-complexity trading. Underlying this strategy was a need to simultaneously invest in data and analytics to inform our decisions and measure execution outcomes. In response, we created the Cross-Asset Electronic Trading (XAET) Group and the Trading Data Analytics (TDA) Team to lead the initiative.

Connectivity to the street

Enhancing market connectivity is a primary focus for the XAET team, as we seek to expand the depth and breadth of liquidity opportunities available across asset classes globally. In liquid markets, this involves streaming dealers’ live bilateral security quotes and tapping into a full suite of electronic execution products offered by the dealer community, such as equity and futures algorithms. In less liquid securities, it may reflect direct access to dealer flow and central risk books. The proliferation of touchpoints potentially will reduce trading costs and lessen our dependence on expensive vendor data feeds over time. Expanded connectivity is still evolving and will likely become more mainstream as the industry evolves.

The multiple uses of analytics

Transaction cost analysis (TCA) continues to be the main engine to aid traders in pre-trade execution strategy formation and post-trade oversight and process improvement protocols. TDA seeks to further these capabilities by incorporating…

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