Meet Martin Polak, Chief Operating Officer (All Options)

Meet Martin Polak, Chief Operating Officer (All Options)

Can you explain the roles of the main participants in modern capital markets – the market makers, the buy side and the banks 
Historically, banks have had quite a big role in financial markets. However, over the last decade you see that independent market makers have increasingly provided liquidity, even more than banks. This is particularly visible in turbulent markets: independent market makers have proved to stay in the market when liquidity is needed most. Great example was the Covid 19 market turbulence, where market makers ensured liquidity and price formation even when it got a bit wild. 

We genuinely cater to the needs of end-investors (or buy-side), by making sure they can always trade at a fair price, in liquid markets. That benefits retail investors, but also institutional investors, as well as banks. We are simply the oil in the machine, always showing prices. Banks have tended to withdraw from market making over the last decade, although they still represent a lot of transaction volume from their clients.  

We simply provide liquidity for end users. So regardless of who wants to trade: investors, or banks on behalf of clients, we take care of the plumbing, together with the exchanges. Amarket maker we ensure that there can be trading at all times, and that the price on the screen is up-to-date and competitive. 

We genuinely cater to the needs of end-investors (or buy-side), by making sure they can always trade at a fair price, in liquid markets.

How has liquidity traditionally flowed and how has electronic trading and market making changed that liquidity flow? 

Traditionally banks and asset managers used to be key sources of liquidity. But sometimes they struggle to keep up with price formationMarket makers have always been present, although the balance has shifted to independent market makers with banks concentrating on transaction volumes for their clients. 
Market makers make prices tighter, leading to more liquidity and cheaper execution for anyone who wants to trade. Over the last 2 decades, the spread (difference between bid and ask prices) has decreased massively, making trading easier and cheaper for everyone. This is a direct result of innovation and technology, in which we continuously invest. This allows us to trade competitively, ultimately benefiting end-investors because prices are better than ever before. 

The other difference we make in modern markets is to make sure that we are there at the moment where there is no liquidity. So, during the Coronavirus crisis for example, market makers kept quoting prices so that crashes are avoided: investors (retail and institutional) could still rely on accurate price formation, which dampens sell-offs and reduces uncertainty. There’s always someone who buys when someone wants to sell. So I think we prevent market crashes and help markets be more stable, even in turbulent circumstances.

Markets, and market makers, are incredibly competitive. There are always multiple market makers, not just a couple of big ones, but a wide variety of them each with different strategies. So we really compete on price and we really make sure that there’s a liquid market at all times. Diversity of market participants is extremely important. That is steadily improving, and we welcome initiatives like speed bumps which allows as many market makers as possible in the market. This helps a lot with less liquid products that are harder to quote. There’s a wider variety of participants in the market, and this increases market quality for retail and institutional investors alike. Market structure is much more diverse and resilient than ever before.

How are market makers, influencing the future development of markets do you think? 

You want diversity and competition in financial markets, and market makers that have different strategies. Most participants in modern markets use algorithmic technologies – from your household broker to pension funds, and we do too. Because we have a natural incentive to price better, we keep innovating. That benefits the end-investor because their pricing gets better, because we, and other institutions, are competing fiercely.

Market makers are in the business of providing pricing on the exchange, but they do so together with other sources of liquidity, like banks, brokers and asset managers. Exactly because there are more and more innovative market participants, markets become more and more competitive. Combined with circuit breakers (halting the market when price formation is no longer accurate), markets have become much more resilient and liquid than in the past, even under the most difficult circumstances. The recent Covid turbulence has shown that markets are operating as they should and that price formation is continuous and correct.   

So how do we influence the future developmentWhat we try to doand our competitors as well, is to try and make sure that the market becomes tighter and tighter, that everything goes through the electronic book. We are fierce proponents of trading everything on lit markets, i.e. on open and competitive exchanges, where supply and demand meet. What we see as problematic is that increasing trading volume, particularly retail trades, are siphoned off liquid markets into ‘aggregators’, affiliated platforms and SIs, away from exchanges 

This simply means that increasing trade volume is no longer contributing to price formation, deteriorating market quality. We are committed to keep exchanges the central market place for all end-investors, because it ensures them a central market place where they achieve the most competitive and transparent prices imaginable: because of fierce competition among all market participants, including market makers. 

Ideally, everything is traded on one single market as that would actually be on just one central exchange for all supply and demand. But this is not an easy thing to achieve because there are a lot of forces who’d rather want to execute trades through their own affiliates, or investment banks and SIsWe see payment for order flow and executing retail orders at reference prices, without genuine supply and demand interaction, as a threat to market quality. That’s why we really believe that full transparency and competition will be there if everything is traded on one key exchange, for each product. 

also think the whole speed game is not something that we should continue to do. Ultimately it only benefits one or two hyper fast participants while stifling competition for all the other participants. Speed bumps and other incentives to end this highly expensive arms race genuinely benefit end-investors. A pointless speed race ultimately costs end-investors real money because competition decreases and trading costs increase to recover the investments in speedThis is something for our industry, as well as exchanges, to reflect about next. 

And how do firms like All Options support broader parts of society through their activities? 
It‘s important to show that that market making has a lot of positive side effects for society, and that’s just us, doing our job. We’re in the business of providing liquidity, competing in markets, being innovative, and improving the market. Ultimately, society benefits because of that, and that is the single most important factor in everything we do 
I will say that we make sure that people can invest in the cheapest way possible, with execution certainty. We believe that if we continue to strive for better markets, a more competitive and innovative market structure, in the end the result will be beneficial for everyone 

So we focus just on that, and keep stressing this with regulators. You don’t want an oligopoly like in the past or an even more fragmented market structure. Eventually, the end-investor pays for increased fragmentation and trade volumes leaking away from central market places. Low-cost or no-cost brokerage sounds nice, but end-investors pay the price in wider spreads and less competition (albeit this is much less visible to retail investors than paying a couple of euros in trading fees on-exchange).

We believe that if we continue to strive for better markets, a more competitive and innovative market structure, in the end the result will be beneficial for everyone.

Without market makers, how would the way capital markets operate change, and what would be the impact?  
Market makers, innovation and competition ensure tight price formation. It’s the multitude of market participants that make markets better. Market makers are best placed to engage in innovation and competition, because it’s our bread and butter. Without independent market makers, like the ‘specialists’ or handful of brokers we used to have on exchanges, there is no innate incentive to price tightly, leaving money on the table that is pocketed by a small number of exchange members. That’s how markets ran until the late 1990s.  
In an ideal world where you have one market, where everything is traded transparently and deeply competitivelyand everyone can just find each other when they want to trade. Then you would even not need any market makers anymore. But that’s hypothetical. In real life, the competition among market participants, largely fuelled by independent market makers, is the best structure we have at this point.  
So what would happen right now, if there were no market makers? There would be much less trading, poor price formation, poor liquidity, wider spreads and higher transaction costs. The quality of the markets would go down a lot, especially in moments of stress, of which there are more and more nowadays.   
The proof of what we as market makers contribute is highly visible. See how markets have become more and more resilient over time. Trading costs and spreads have decreased by magnitudes over the last 10-15 years. That’s innovation and competition working for the end-investors, even in severely stressed markets. Any other way I think it will be much more expensive to trade. We may not be very visible behind the flickering number on the exchanges, but the benefits to end-investors and society are very real. 


To find out more about All Options, visit alloptions.nl

Diversity, inclusivity and creativity: how modern market makers will deliver on the UN’s Sustainable Development Goals

Diversity, inclusivity and creativity: how modern market makers will deliver on the UN’s Sustainable Development Goals

Interview with Ian Firla, Co-Founder and Director, OSTC Group

Q. The #WeAreMarketMakers campaign aims to give people a new window in the world of modern market making. What does modern market making mean to you?

Market making was, is and always will be about providing liquidity to the exchanges. About helping to reduce risk, and making markets more efficient. But from OSTC’s perspective, what makes market making ‘modern’ is who is doing that. It’s the shift from market making being a very generic and predominantly white male occupation, to one that is much more diverse and inclusive.

OSTC is proud to be at the cutting edge of that change with our global education programmes, which are all about introducing the job of market making to a much more diverse audience

“What makes market making ‘modernis who is doing that. It’s the shift from market making being a very generic and predominantly white male occupation, to one that is much more diverse and inclusive.

Q. In your opinion, how does greater diversity within the market making community help to benefit financial markets?
At OTSC we are seeing a real democratisation in the trading space as more and more individuals are joining who are not from the traditional talent groups that have been recruited into the industry in the past. These new participants could be seen as a threat to current incumbents who are in the markets, but the reality is that they bring huge benefits with them.

These diverse new individuals will come with a multitude of views on the world and the industry, and a multitude of experiences. And with these views and experiences, we’ll see a further investment of creativity and diversity of thought that is going to make the markets become even more robust and stable. They will help us to innovate in order to achieve the Sustainable Development Goals that the UN is asking our industry to achieve in order to create a more sustainable world.

This big picture benefit is one of the reasons we are very proud of our global education programmes at OSTC which are all about introducing market making to talented individuals who may well not otherwise have had the opportunity to discover, or try it.

“New participants could be seen as a threat to current incumbents who are in the markets, but the reality is that they bring huge benefits with them.

Q. You’ve talked about the benefits to the market making community, and to the markets, of introducing diverse talent. What are the benefits to the individuals who participate in your programmes like yours?
From our experience, we see a really wide range of benefits. First of all, when individuals participate in our programmes, the improved financial literacy they gain benefits them and their communities. They better understand the markets they operate in, and what drives them, and how global markets have an impact on them and their livelihoods.
More broadly, we’ve seen the impact measured by GVA that we have been able to make in countries like Poland where we were one of the first, and certainly the largest, proprietary derivatives trading programmes coming into the country. By enabling individuals there to learn about the markets and how to trade, we opened up opportunities that wouldn’t otherwise have been there. Individuals who took part in the programmes are now at the head of a very wide variety of financial services firms in Poland; in the front and back office. The GVA studies on our impact in countries like Poland, or Wales, have been incredibly positive.
Q. You and your teams must meet lots of aspiring market makers. What do you think it takes to be a great market maker?
Well, while we are often seen as a London based company, we have a presence across the world, from Poland to India, China to Russia, and Wales to the Ukraine. These might not sound like obvious places for a firm like us to be, but that is absolutely in line with our vision that anyone, anywhere can learn how to trade.
We believe that anyone with a sharp mind, who is good with numbers – and who has a desire to succeed, has what it takes to be a great market maker. You do need to understand risk, of course, but you certainly don’t need to be tied to a particular location.
At the moment we are exploring a push into Africa, which presents a fantastic opportunity. It’s an opportunity for individuals there to learn to participate in the global markets which have a direct impact on many African countries because of the products traded. Take cocoa, for instance, and the impact of commodities markets on a country like Ghana. And of course, it’s also an opportunity for us, and the wider markets, to benefit from the incredible talent there. There are upsides for everyone.

“We believe that anyone with a sharp mind, who is good with numbers – and who has a desire to succeed, has what it takes to be a great market maker.

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
Market Makers Enabling a Greener Financial Future

Market Makers Enabling a Greener Financial Future

As the world’s attention turns to Glasgow for COP26 this month, I wanted to explore the critical role that finance plays in sustainability and the climate crisis, and more importantly, the role that market makers play. Sustainable Finance is an essential enabler to work towards a more sustainable and climate-resilient world. It’s a critical part of unlocking the investment capital that is needed to support the green transition and protect our planet’s future.
The role of market makers currently can most easily be seen in regard to supporting ESG products which play a vital role in the green transition. ESG financial products incorporate the environmental, social and governance principles that make sure that a product is sustainable. This will be supported by, for instance, the EU taxonomy regulation which will give clear standards for what is considered green.
These ESG products are critical to society, investors and for the green transition towards sustainable capital markets. Developing ESG products also encourages transparency and consistency in reporting, while also raising awareness and building the expertise of investors. These products have environmental and/or social benefits that impact bigger goals set by COP 26 and help get to net zero in 2050.
So what role do market makers play in this? Market makers can help facilitate the shift towards sustainable investments by providing liquidity in ESG products, making them more attractive to invest in. They do this by making competitive pricing (tight bid-ask spread) and also through providing deep pools of liquidity, this helps minimise the cost of investing in ESG products, which in turn helps investors reorient their capital to sustainable investments.

“Market makers can help facilitate the shift towards sustainable investments by providing liquidity in ESG products, making them more attractive to invest in.

ESG products are still fairly new to the market, but demand for them is growing, and with more and more investors who are conscious of the environmental impact of their investment strategies. As an industry, market makers play a crucial role in this transition. Market makers have the ability to support investors with the migration towards green investments, firstly, by making sure that investors can sell their ‘brown’ products while facilitating a smooth transition towards green products. And secondly, by giving trust in a product. When it comes to new financial products, investors want to be sure that there is always a market for that product. By providing continuous liquidity, market makers make sure that there is always someone present in the market, even in volatile circumstances.

 

“By providing continuous liquidity, market makers
make sure that there is always someone present in the market, even in volatile circumstances.

Our members are already putting their commitment to our sustainable finance principles into action, taking active roles in ESG products. With market makers committed to trading these products, it gives investors the confidence that they need to include ESG products into their portfolios and investment strategies. I believe that ESG products are just scratching the surface in terms of how finance will help accelerate the green transition. Interest and confidence in these products will only continue to grow in the months and years to come, and I hope that this will lead to even more innovation in terms of new products in the future.

 

Conor McCann, Head of Derivatives Sales (Susquehanna International Group)

Conor McCann, Head of Derivatives Sales (Susquehanna International Group)


Tell me a bit about your role and what it involves.

I look after the direct counterparty trading at SIG. I work closely with our sales traders who manage the relationships with our direct trading partners.

At SIG we facilitate off order book trading with various types of institution where we aim to deliver competitive prices that fit the needs of these trading partners. I am responsible for the pricing of these trades with a focus on the equity derivative space

A large reason that counterparties come to trade with us directly is our ability to minimise the impact of their large sized trades, we absorb the risks into our own trading book and look to limit the need to offload risk immediately into the market.

Outside of the pricing of these trades a large part of my role is to manage the risk we take on associated with this trading. I work within a group that is active in the inter-dealer broker market and liaise with our electronic market makers to remain plugged in to the trading and potentially avail of any opportunities that present themselves to recycle legacy risk positions that exist from our previous trading.

A large reason that counterparties come to trade with us directly is our ability to minimise the impact of their large sized trades, we absorb the risks into our own trading book and look to limit the need to offload risk immediately into the market.

What does a typical day look like?

I like to get into work around 7:15. I’ll spend some time pre-open getting set up complete and ready for the trading day. I try to get a feel for where the markets are, what’s driving them and to get my thoughts together for what to expect of the day, what needs work, what could happen that might change my thoughts.

Then we’ll, we’ll have a series of different meetings in the morning to share thoughts within the team. So we speak with some of our corporate researchers in the morning, we talk amongst the traders as well. I have a meeting with my sales traders to get the expectations of the day, get everybody on the same wavelength as to what’s important for the day. We are then ready to go once the market opens at eight o’clock.

Typically, I am quite busy for the first three hours making prices for direct counterparties. It’s rare that there is much free time during this period each day. Up until 11 o’clock is usually spent working on those core responsibilities of market making for our direct counterparty trading.

The 11 o’clock to two o’clock period is often a lot calmer, we take some time to figure out what’s going on, a little bit of reflection on how the trading has gone early in the morning.

We can use this time to schedule meetings, take some time on any projects that we are working on.

Trading often gets busy again in the afternoon. From two o’clock to 4.30 I’ll often be spending much of my time on the direct counterparty pricing again.

At the end of the day there’ll be a lot of discussion on the desk and with different people about what has gone on and what we think could be important for tomorrow. Preparation for the next day is already beginning. We also take that time to reflect on what has happened and what are the key takeaways. 

What is it that you like about working about Susquehanna?

I’m interested in the financial markets in general, so like the sector that I’m working in. In terms of working for Susquehanna, I like working for a firm that operates in a high-performance manner with a process driven and best practices approach to what we do.  We have a reasonably casual office environment but have a large work force that are all very engaged in the work. I like my colleagues, I think a lot of firms can talk of teamwork being important to them, but in Susquehanna, we certainly do live that. I find the team emphasis rewarding and do think it crucial to our success.

What is it that makes you proud about what you do?

I am proud that we are an important part of the markets that we participate. If we’re trading a product, we aim to properly trade the product, and have a positive influence on those markets.

I’m very happy that we have good relationships with the exchanges and with our trading partners and that my role allows me to have some influence in this regard. We don’t just focus on our own activities-we care about and pay attention to the overall market structure and want to see the market benefit all market users and grow.

 

So how did you get into market making like why did you choose it?

I came to it somewhat late, at university I took a pathway where I studied mathematics and statistics and pure mathematics was probably the largest chunk of my degree.

I was looking at roles that mathematics might be a good gateway into, and I knew of Susquehanna from being in Ireland and they were beginning to build a presence at our college.

I was increasingly intrigued as I learned more about the company, I was very drawn to the real interest in decision making and game theory. It gelled very well with my own interests and background.

  

We don’t just focus on our own activities-we care about and pay attention to the overall market structure and want to see the market benefit all market users and grow.


What do you think it takes to be a market maker?

In our office there’s definitely different ways to go about things, I certainly don’t trade in the same way as everybody else and there’s no one size fits all. Having said that there are some key skills you’ll need. Most important is being a clear thinker. Being able to manage a lot of information, make accurate inferences from that information and be comfortable in an environment where you don’t have full information, but still be able to make decisions.

Enthusiasm is incredibly important. I’ve been doing this for 14 years and I’m still learning things, I don’t think anybody ever fully masters market making so you do have that drive towards self-improvement. Self-awareness and critical self-analysis are important tools to have or to develop.

The #WeAreMarketMakers campaign is about highlighting what market making adds to the markets and society. What is your perspective on this?

 The key function of market making is, is to be able to provide a tradable price when it’s needed. The immediacy here is a crucial part of the service we provide. This ultimately reduces costs for investors and promotes liquidity which has the added benefit of reducing the cost of capital for companies. This in turn is a benefit to society.

Increasingly a further value add is for us to help in holding our share of the risk in our markets. The risk ultimately must be taken on, we play our part in this, pricing it correctly and holding and managing the positions through time. This helps absorb price shocks in volatile market conditions and I think this is an important function to provide to help facilitate a healthy, stable market.

To find out more about Susquehanna International Group (SIG) visit www.sig.com

Meet the Head of Trading, Alex Kieft (Flow Traders)

Meet the Head of Trading, Alex Kieft (Flow Traders)

Tell us about your role at Flow Traders, what does it normally involve?

Well, I joined seven years ago as a junior trader. After five years I became head of trading. So now I am responsible for about 40 traders and quant researchers that are working at Flow Traders in Amsterdam. I am involved operationally with the trading desks, mainly the equity desks, and I spend about 50% of the time working alongside the traders, motivating them, helping them with trading decisions where needed. From a leadership perspective, my role is about developing talent and therefore I aim to be approachable, open and flexible with the team. And then the other 50% of the time I spend more strategically on the long-term goals that we have at Flow Traders, namely becoming a one stop shop for liquidity in all financial products.

 


What does your day typically look like?

Yeah, so we come in early in the morning between 7.30 and 8.00, then we get briefed on the news that happened overnight in the Americas and Asia. Afterwards, I personally check in with all the desks to make sure there’s nothing extraordinary going on, helping them where needed to make sure we’re ready for the market open at nine o’clock, because then we need to make sure that we provide liquidity in thousands of instruments.

Then during the day, I am still checking in with traders whenever there’s something extraordinary going on, helping them along. And again, spending a considerable amount of time more strategically.


What do you like about working at Flow Traders? And about Market Making?

Everybody is extremely driven, determined to be the best every time. We’re also very tech savvy, so there’s plenty of opportunities to keep learning every day. We focus on fostering a dynamic and collaborated working environment. I have great co-workers, very international and also very diverse.

Market making is very fast paced and you immediately see the results of your actions. I have a background more in theoretical physics, where you can spend years researching something that may yield a result or not, but in trading it’s very binary. You immediately see the results and then that’s something that gives me a kick.

“Market making is very fast paced and you immediately see the results of your actions.

What is it that makes you proud of what you do?

Two things, the first is that I’m part of this company that is very successful and one of the leading market makers. We’re successfully expanding into asset classes like bonds, currencies and cryptocurrencies, where we have this ambition of becoming a one stop shop for liquidity in everything.

And then, on a more personal and role based level. I feel proud whenever the new generation of traders comes in and I can help them grow and become sort of where I’m at now in my career. Whenever they do well that makes me pretty proud.


How did you get into market making, why did you choose market making as a career?

I had some affinity with trading but not that much. I was particularly attracted to the competitive element that is in there, as well as the people that I met in trading were extremely smart, and I thought to myself that I wanted to be part of this industry where you have an entrepreneurial mindset and people always wanting to be the best.

The impact that Flow Traders has and the relevance of being a market maker is also what appealed to me. Seeing the impact in practice and how we contribute to the efficiency and transparency of the market is really interesting.


What advice would you give to others who might be considering a career as a market maker?

If people have got what it takes and want to work alongside the smartest people, then I can only recommend that they do it, and we at Flow Traders like to create an environment for those kinds of skills to flourish.

We really stimulate people in their career so that they can grow from coming basically fresh from university with just an analytical skillset and not so much knowledge about financial markets yet, and within a short amount of time, we can teach them all the stuff they need, and then they will quickly grow into being successful traders themselves.

 

 

What does it take to become a market maker?

Well, obviously it does start with an interest in financial markets. You should be able to handle a dynamic working environment well, be able to react quickly. Next, you need strong numerical and analytical skills. Also, being able to crunch data.

Then on softer skills, here we really value teamwork, because we need to rely on each other on the trading floor and when we collaborate with different departments and regions effectively.

And finally integrity is a very important value for our traders.


The #WeAreMarketMakers campaign is about highlighting what market making
adds to the markets and society. What is your perspective on this?

Flow Traders and other market makers serve society by improving the markets. We provide liquidity in many financial products which contribute to more efficient flows of money and capital, we lower the overall trading costs for any sorts of investments. We make sure investors, big and small, can trade at any time in the product they prefer,  for example, if they want to invest in green energy, market makers make it possible for them to do that at reason or at the lowest possible transaction costs.  We have a warehouse function as well. Every investor can trade any financial product under every circumstance with us. Even during real stressful times like March 2020, market makers made sure the financial markets were available and provided the necessary relief for investors in need for liquidity.

As a market maker we respond to whatever the needs are of investors. And we see increasingly that investors are focused on the ESG segments. There are now in Europe over 400 different kinds of ESG ETFs. And we trade on a yearly basis over 50 billion euros in such ETFs. We try to make sure that it’s as efficient and as cheap as possible for investors to invest in these segments.

“We provide liquidity in many financial products which contribute to more efficient flows of money and capital, we lower the overall trading costs for any sorts of investments.”

If you could tell people, one thing about market making and what it is that you do, what would it be?

As a market maker we provide liquidity so we make sure investments are possible, and people don’t have wait to do business. For example, hypothetically, if you have an illiquid asset, it can take you days or weeks  to sell it and you probably need to make a lot of phone calls to find a suitable buyer. With market makers in between, we make sure that at any given time, people can transact in these products and don’t have to wait until there happens to be interest on the other side.

A key impact of a market marker is also creating efficiency and transparency across the market.

 

 

To find out more about Flow Traders visit www.flowtraders.com

Necessity is the mother of invention: Covid catalysed creativity in capital markets

Necessity is the mother of invention: Covid catalysed creativity in capital markets

The idea that market makers, as electronic liquidity providers, are some kind of offshoot in liquidity provision has finally been put to bed during the recent pandemic. 

The market making community is becoming an increasingly large part of capital markets; a recognised destination for retail and institutional investors alike. It’s a shift that started some time ago, was expedited by the conditions that Covid created, and now looks set to lead to the institutionalisation of market makers and the service they provide to capital markets. 

Perhaps in the early days of electronic trading there were some market making firms that chose to put profit before long term client relationships; and that created an environment of mistrust. But that’s been broken down over the years by firms who have been more honest and open about what their trading strategy is. How they execute their order flow, and how they share information with their counter parties. Post trade data standardisation has been critical in the change because it provides that welcome level of confidence and trust. As one asset manager eloquently put it during my research for the Liquidity in the Time of Covid report: “You can take a turn but don’t take my shirt”.

“As one asset manager eloquently put it during my research for the Liquidity in the Time of Covid report: “You can take a turn but don’t take my shirt.”

When the pandemic struck there was still a healthy level of scepticism towards electronic liquidity providers. Traders wondered how and whether they would benefit from a participant with superior technology and the ability to understand their flow. But as some on the sell side started to pull balance sheet back a vacuum in liquidity was created, and many buy-side found themselves unable to execute their trades. Market makers saw this, recognized the opportunity and stepped in to fill the vacuum. They provided the liquidity the markets needed, and the wider behaviours that accompanied this shift were really encouraging. Market makers stepped up to educate a sceptical buy side, and there was much more dialogue and knowledge-share in routing practices than we’d seen previously. 

“Market makers stepped up to educate a sceptical buy side, and there was much more dialogue and knowledge-share in routing practices than we’d seen previously.

The report is very clear that, during the period of heightened stress in the markets, automated trading helped to keep capital markets moving. But perhaps what’s even more interesting is the ongoing influence of that shift even today. We are starting to see a knock on impact on what assets are being invested in and how trading takes place. So rather than an asset manager looking to get a single ticket done in £30million they are starting to think more creatively about the different ways they might execute that order. That might be with one electronic liquidity provider they engage with and then they are able to increase their order size. Or increasingly, looking at different ways to get the same exposure. So rather than a single issuance for 2029 for example, perhaps they’ll get the same exposure but change the assets they trade so that they get exposure over 2025, 2027 and 2029.

As the markets have normalised, the buy side has started to recognise the importance of having optionality, so they have different types of providers they can go to for different types of flow. Today, it’s much more about making sure that you have the right trading partner for the right order flow that you are looking to execute.  By offering broader optionality, market makers have not only grown their own market share during the pandemic, but opened new horizons for all market participants by democratising access to liquidity. Their presence has meant that everyone and anyone can enjoy the same access, creating a more level playing field for all participants, whatever their tier or type. It’s a sign that the markets are evolving and signals how different market participants are working together within the wider eco structure to create the better outcomes for everyone.

“Today, it’s much more about making sure that you have the right trading partner for the right order flow that you are looking to execute.  Market makers have not only grown their own market share during the pandemic, but opened new horizons for all market participants by democratising access to liquidity.