Certainty amidst uncertainty: How the Covid-19 pandemic catalysed a paradigm shift for market makers

Certainty amidst uncertainty: How the Covid-19 pandemic catalysed a paradigm shift for market makers

Interview with Piebe Teeboom, Secretary General at FIA European Principal Traders Association (FIA EPTA)

 

Q. FIA EPTA’s latest thought leadership report, Liquidity in the Time of Covid explores how the Covid-19 pandemic changed the role and reputation of market makers. In your opinion, how significant has this change been?

In recent years, market makers have been playing a growing role in liquidity provision within European capital markets. But it’s fair to say that this has been an ongoing evolution, not revolution, and has been happening somewhat under the surface.

However, when the pandemic hit, all of that changed. Many more market participants needed to quickly change the way they accessed liquidity, and market makers offered a reliable and very efficient way for them to do that.

Covid-19 catalysed a paradigm shift in the way people perceived market makers’ value; and in the amount of added value market makers were able to bring. To the markets and to wider society.


Q.
What were market makers offering during the pandemic that others were not?

The short answer is certainty. Whether you are an asset manager or a retail investor, the fact that market makers commit to being always present in the markets means you can always buy or sell when you want to, and at the best price. You’ll never have to wait to make a transaction.

You can imagine how important that certainty was during the Covid crisis, when all around there was so much uncertainty and trading was , incredibly choppy. It’s why the pandemic created a real light-bulb moment for asset managers in terms of the way they view and engage with market markers.

“The pandemic has the pandemic created a real light-bulb moment for asset managers in terms of the way they view and engage with market markers.”

 Q. Now that the initial uncertainty created by Covid has passed, do you think the more central role market makers have carved out will continue?

I think we are entering an exciting new chapter for the market making community because they are now being seen more as a genuinely viable and reliable option when it comes to liquidity provision. They have shown the benefits that cutting-edge electronic trading can bring to the markets, especially in the bond space.

The buy side asset managers interviewed for the Liquidity in the Time of Covid report were clear that they are keen to have more diversity now in the way they access liquidity, with market makers emerging as new liquidity partners in the wider market mix.

I think that what the last year or so has taught market participants is that greater diversity of options makes for more resilient financial markets that can weather unexpected storms. And that is good news for market makers and good news for everyone else, from nest-egg investors to asset managers.

“The last year or so has taught market participants is that greater diversity of options makes for more resilient financial markets that can weather unexpected storms.”

 
Q. Did you launch the #WeAreMarketMakers campaign as a response to the changes brought about by the pandemic?

The catalyst for the campaign was actually much closer to home. This year marks the 10th anniversary of FIA EPTA and, just as we have evolved as an organisation over the last decade, so the market making community that we are proud to represent has further matured in that time too. We wanted to do something to mark our 10 year anniversary that would also show the contributions of modern market makers to European capital markets and wider society.

One of the key aspects of the campaign will be putting a face to the innovators behind the code. You’ll see lots more of them over the coming months. We’ll be launching more thought leadership reports exploring different aspects of why liquidity matters so much to well-functioning markets. And we’ll be tackling some of the common questions those in the market making community receive about what they do, and how they do it. Perhaps addressing some myths head-on too.

While the pandemic wasn’t the reason for launching #WeAreMarketMakers, it has created a timely conversation about the market making community and its often unperceived benefits to markets and wider society. Today, the campaign feels more relevant and important than ever.

 

THE ‘LIQUIDITY IN THE TIME OF COVID‘ REPORT IS AVAILABLE TO DOWNLOAD HERE.

Lockdown restrictions liberated market making firms to reap the benefits of difference

Lockdown restrictions liberated market making firms to reap the benefits of difference

Interview with Ian Firla, Head of Innovation, OSTC Ltd.

Q. The #WeAreMarketMakers campaign has been launched to help the world to better understand who market makers are and what they do. As a senior figure within a global market making firm, what would you want the world to know?

 

That market making is changing. It’s no longer that image perpetuated by the media and film, of traders in coloured jackets flailing their arms around. Yes, there are a lot of white men in the industry, but you don’t need to be one to take part. It’s really important for people to know that. You need a sharp mind. To be good with numbers. You need to understand risk. And you need a passion for the markets. But beyond that, it doesn’t matter.

There’s a growing focus now in this industry on diversity and inclusion in recruitment, and ensuring everyone has access to the right education opportunities. As a global proprietary derivatives trading firm and educator, I’m proud that OSTC is at the cutting edge of this. It’s a really exciting place to be.

“ You need a sharp mind. To be good with numbers. You need to understand risk.
And you need a passion for markets making may have several beneficial effects on markets. But beyond that, it doesn’t matter.”


Q. The first of FIA EPTA’s thought leadership reports for the campaign looks at how liquidity, and market making, changed during the pandemic. What effects did the pandemic have on you and the team at OSTC?

It’s been quite interesting to observe the impacts of the pandemics on the markets. There have been issues of liquidity, for sure. Though in our own experience, these have perhaps not been as profound as they have been for others.

But what we have found is that the pandemic has really emphasised the point that anyone can trade and do their job from anywhere. OSTC has had a programme allowing anyone to work from home, and we have found that it has really expanded and extended our latest recruitment drives. People who have been trained remotely, and developed remotely, are now operating as market makers and liquidity providers remotely.

In this respect, the pandemic has helped to emphasise that a well-trained and well-risked individual can do his or her job from anywhere. And that really liberates firms like ours to be able to recruit the best talent, and inject the best liquidity into the markets, from anywhere.

“The pandemic has helped to emphasise that a well-trained and well-risked individual can do his or her job from anywhere. And that really liberates firms like ours to be able to recruit the best talent, and inject the best liquidity into the markets.”

 Q. There can be a perception that market makers are just algorithms. How important is human direction in market making?

The human touch is extremely important in market making. It’s exactly why we have such a focus on recruiting diverse talent. If you have a group of people in your team who all think the same way, and are hoping to do the same thing, they will programme algorithms in the same way too. They will all point in the same direction.

The greater diversity of people you have within your team, the more creativity you get, and the more you are derisking what you do. Because you know that someone will always bring an alternative view point, in a way that they wouldn’t if you were only working with a group of very like-minded individuals. At OSTC we are really reaping the benefits of difference.

 Q. Given market makers, through liquidity provision, play an additive role in the markets and wider society, why do you think they were given a bad press in the past? 

Honestly, that has always been curious to me. Market makers are literally performing a function. We are providing liquidity, without which the markets would be a far riskier place for both the buy side and sell side to engage. In fact, the risk being introduced to markets without market makers’ presence would be highly amplified. Market makers help to make markets more stable, more secure, for everyone.

OTSC is a global derivatives trading firm and educator providing liquidity globally on most of the major exchanges. It prides itself in its inclusivity and diversity programmes.

For more information on OTSC visit: www.ostc.com

Building New Liquidity Partnerships – The View from the Buy Side

Building New Liquidity Partnerships – The View from the Buy Side

A liquidity drought in Europe’s bond markets in the early stages of the Covid-19 pandemic accelerated a structural shift in how asset managers engage with independent market making firms and see them increasingly as trusted partners.

These are the headline findings of a new independent study into the impact of Covid on capital markets by Redlap Consulting, a specialist research firm.

The study, Building New Liquidity Partnerships – The View from the Buy Side’, will be discussed at the International Derivatives Expo in London on September 27th. It is based on interviews with 30 Global Heads of Trading at EU and UK asset management firms with over $35 trillion of assets under management.

Rebecca Healey, Managing Partner of Redlap Consulting, will moderate the panel discussion, which will feature Piebe Teeboom, Secretary General of FIA EPTA, Robert Miller, Execution Consultant from Vanguard Asset Management and Andy Mahoney, Managing Director of FlexTrade Systems.

The discussion will look at how Covid-19 continues to redefine the trading landscape as remote working, greater reliance on cloud technology and the high volatility early in the pandemic impacted how the buy side accessed liquidity.

And why today asset managers are looking to benefit from a wider, and more diverse, pool of counterparties to create greater optionality in how they can execute their investment strategies.

The session will shed light on what changes buy-side firms are making, which trends are here to stay, and who will the trading partners of the future be.

The report, which will be released publicly on September 28th, is part of a new campaign about the market making community, called #WeAreMarketMakers, led by FIA EPTA.

#WeAreMarketMakers – meet the innovators behind the code

#WeAreMarketMakers – meet the innovators behind the code

This year marks FIA EPTA’s ten year anniversary – a milestone we are proud of and a moment to look back on how far we as an industry have come. We have engaged proactively with many EU regulators and policymakers over the past decade to help them to understand how our industry works and the pivotal role that it plays, in financial markets and wider society. What we haven’t done is communicate that message to wider audiences: the growing group of people who benefit from market makers’ constant presence in European Capital markets. As an industry that prides itself in driving ever greater transparency through the financial sector, we wanted to use this moment to share the sector’s story with a much wider audience than we would usually. The #WeAreMarketMakers campaign launches today to provide what we hope will be a valuable window on the world of market making; what it is; how it works; and its growing contribution to progress, people and the planet.

It’s certainly the case that, despite market makers’ constant presence in capital markets, there is limited understanding of what they do, who they are – and why they really matter. Most people are unaware, for example, that market makers are a vital source of liquidity for any investor seeking to buy or sell; enabling them to do that on their terms and in their time. This is largely because what we do isn’t always easy to see from the outside, especially given the electronic and technological nature of our work- and the speed at which it all happens. It means that our presence, while often unseen, is constantly felt. It is felt by every investor enabled to seize an opportunity or manage a risk with a trade. And it is felt at a broad level too. We are fundamental to the resilience of European financial markets, especially throughout the Covid-19 pandemic.   

Without market makers, there would be limited liquidity in the markets, which means people would not be able to be execute orders. That would lead to an increase in volatility and as a result in higher cost, affecting everyone from pensioners to entrepreneurs. This campaign aims to demonstrate how important market makers are, not just for the future of modern markets, but also to people’s everyday lives. Market makers put more money into pensioners’ pockets by helping to improve returns on their pension funds. They enable growing businesses to reach their potential.  

Importantly, the campaign will also introduce the people behind the industry, the faces behind the algorithms and code. Market makers are mathematicians, technologists, data scientists, operations experts and researchers who harness the latest trading technologies to serve a unique role in European financial markets. For the first time, those people will explain their roles in more detail, and help paint a picture of what goes on in their working day.

#WeAreMarketMakers is a multi-disciplinary campaign, with a dedicated microsite with resources and information, a social media campaign, and a new series of thought leadership reports commissioned to dig deeper into industry trends. We hope that with this new outreach, we will not only teach people more about market making, but inspire the next generation of market makers.