Share via:



Turning The Tables On Liquidity Provision – Download The Report

by Adam Powell

Europe’s trading landscape is being fundamentally reshaped as asset managers transform from ‘liquidity takers’ to ‘liquidity makers’. Our new report Turning the Tables on Liquidity Provision lays bare the changes taking place in the UK and EU’s capital markets as the after-effects of the pandemic continue to be felt.

In particular, equity and fixed-income markets are at the point of a radical shake-up as the buyside settles into the liquidity driving seat. And the impact has prompted calls for the current regulatory rulebook to be overhauled to keep pace with the changes, or risk falling behind.

The new report is written by capital markets research specialists Redlap Consulting and is the second in a three-part series on key trends in European markets, focusing on buy-side liquidity needs.

“The pandemic has created an opportunity for a new eco-system to emerge. Asset managers are now increasing control over their order flow across both equities and, crucially, fixed income markets.

“It’s a real game-changer as the fixed income markets were the last bastion of sell-side liquidity provision. We’re witnessing a sea-change in the way the markets will operate in the future.”

– Report Author Rebecca Healey

The report reveals asset managers are increasingly turning to automated trading to execute their orders. And because of increased innovation in trade initiation, creation, and execution, they’re able to engage with more liquidity providers, including independent market makers.

These new systems help to solve traditional impediments in bond markets which prevented the buy-side from engaging with a more diverse and broader set of counterparties due to the infrequency with which bonds trade and the risk of incurring any information leakage. Now, the ability to automate trading intentions as well as order flow provides the buy-side with the ability to maximise potential engagement yet still protect information about the trade and prevent undue price movements.

Another key finding is that asset managers require better post-trade data to select the most appropriate counterparty to trade. Crucially, respondents want to better understand whether their order flow has provided or taken liquidity – which determines who they select as a trading counterparty.

Piebe Teeboom, Secretary General of FIA EPTA, the European industry body for market making firms, which commissioned the report.

“The trends identified in this report are significant as they signal a clear shift in the balance of liquidity provision in European markets. It’s a fundamental realignment which policy-makers should consider as they update the regulatory rulebooks in both the EU and UK.”

– Piebe Teeboom, Secretary General of FIA EPTA

Based on interviews with global heads of trading at 30 EU and UK based asset management firms with over $35 trillion of assets under management, the report found:


    • Nine out of ten respondents (87%) want to maximise their liquidity access with market making firms;
    • Seven out of ten respondents (70%) said data and technology continue to increase in importance in deciding where and how to trade;
    • Two-thirds of respondents (67%) said transparency is a key factor in the selection process of liquidity partners.

“Between 60-70% of our order flow was done on a bilateral basis historically. In the past six months that ratio has flipped. We are changing how we trade and who we partner with as a result.”

– The Head of Trading, Mid-Sized European Asset Manager