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.