As buy side workflows are becoming complex, these firms are looking for ways to simplify how they view and manage them, Basu Choudhury business intelligence, Nex Traiana, explains to Profit & Loss.
Choudhury says that whereas in the past, buy side firms used to have only one prime broker (PB), today they have as many as four or five, as well as bilateral relationships. Further, when they execute, they might do so via an anonymous venue or they might trade against another buy side firm using a prime broker.
“So what we’re seeing and hearing is that they want a single panel where they can see their PB relationships, and bilateral, and even clearing at some point within one dashboard, one platform, where they can manage the matching, [confirmations] and settlements,” he says.
Previously, buy side firms would have relied on their PBs to facilitate a holistic view of these functions, adds Choudhury, but now they’re looking for their own internal solutions that enable them to do this.
He pointed out that a knock-on effect of the liquidity rules means that buy side firms are subject to funding charges from their custodian or settlement agents. So if a buy side firm has a set of trades that they need to net down to physically settle, but then realise that they actually need one of these trades to settle gross, currently they will end up passing around spreadsheets and calling their bilateral counterparty and custodian to find the liquidity needed to achieve this gross settlement, which costs the buy side firm.
Therefore, Choudhury says that Traiana is building a network that will allow buy side firms to electronically communicate their intent to settle one trade out of a set, gross, while continuing to settle the other, net.
“And actually that type of solution gives them a lot of benefits from a cost perspective, because all of a sudden they’re not going to get charged that additional funding for the custodian to run around and have to find additional liquidity, but also on the dealer side they would have to find that additional liquidity in order to allow for that trade to settle gross. So there are benefits, not just for the buy side, but also for the dealers and their custodians,” he adds.
Watch the full interview here: