Cost Pressures and Alternative Venues Drive the Move to Market Sized Trades

In a recent survey, we examined how asset managers were adapting trading strategies to better source corporate bond liquidity.

Forward-thinking dealers want to understand how changing practices will re-define their business.  They turned to us for an objective, structured, quantitatively-driven information and analysis.

We found that the decline of the block is underway.  Specifically, asset managers are eager to move away from the traditional dealer-centric block trading model as less-costly alternatives that provide a high degree of execution certainty arise.

Nearly 2/3 of the 52 head or senior traders we surveyed at leading asset management firms indicated and strong or moderate inclination to break up block trades in favor of multiple smaller market-sized transactions.  See the figure below.

61% of head and senior credit traders surveyed indicated they planned to change their approach to block trading; 35% indicated they expected no change, while only 4% indicated a moderately lower inclination to break up blocks.

Given this shift in strategy dealers need to ensure they are well positioned to capture the uptick in volume of smaller sized transactions.  A key consideration identified in the survey was the importance placed on execution certainty as asset managers take on greater execution risk.

100% of survey respondents indicated that execution certainty with respect to market-sized trades was an important consideration in dealer and venue selection.  77% expressed that execution certainty played a key role in determining where trades were directed.

Lastly, we looked at how specific dealers were doing when it came to providing liquidity in a consistent, transparent and cost efficient manner.  The results indicated a definite disparity among the household names.

The dealers to the left of the chart are highly regarded by the market for consistently meeting customers price and size requirements.  Those on the right very much the opposite.

As it turns out, Dealer 8 is a Woodbine Associates Member.  They had heard rumblings that several active corporate bond traders were grumbling about their pricing, transparency, and size available for market sized trades.  Our information provided desk management with compelling data facilitated a change in certain practices.  It also provided a basis to secure budget for the build-out of necessary infrastructure to meet impending changes.

Actionable information is critical in the current market.  Leading dealers and vendors are increasingly looking to Woodbine Associates to secure business intelligence necessary to expand market share and increase revenue.


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