Why is fixed income trading still highly manual in 2021? Portfolio construction processes are generally not tightly integrated with trading decisions, even though fixed income investing is considered through both a top-down and bottom-up lens. Even the most fundamental aspect of trading - price discovery - remains a tedious and time-consuming activity for most fixed income market participants.

To help address these challenges, IHS Markit's thinkFolio is partnering with Wave Labs; a firm that has created fixed income tools with a twist - namely, a suite that delivers a functional window through a trader's perspective. Wave Labs is an example of a new breed of specialists stepping in to fill the void left by the established Execution Management System (EMS) vendors who are challenged to keep up in the technology arms race that has a high bar for success for each asset class. This pattern is also evident in other areas of fixed income trading, as alternative liquidity providers challenge the established players with advanced technology that offers unique insights, workflows and a variety of flexible and innovative trading protocols.

According to Wave Labs CEO & Founder, Miles Kumaresan, "Wave Labs' success lies in the unconventional way in which we went about gaining an edge in fixed income trading. It started with defining a workflow that is both liquidity discovery-centric and uniquely fixed income in focus. With this at its foundation, Wave Labs set out to create a range of tools that supported the different pieces of the trading puzzle. These components collectively form a fluid workflow that assists traders at every step of the trading lifecycle. A trader decides when and what he or she wants to use, depending on the task at hand."

Wave Labs' eLiSA (Electronic Liquidity Seeking Application) is an EMS that cuts away most tedious tasks. Utilizing cloud-based APIs to route orders and complete trades, it starts by eliminating the need for liquidity venue-provided UIs. eLiSA offers a rich set of both pre- and during trade analytics, as well as multiple order types, automated liquidity seeking and liquidity provisioning features.

Another unconventional aspect of eLiSA is the Execution Analysis module that is crafted specifically for fixed income. Instead of focusing on trading costs measured to non-tangible quotes that can make great execution look mediocre, it addresses the documentation requirements of the high-touch trading process. Kumaresan adds, "Classical TCA is a dated concept that has not evolved over the years to meet the expectations of today's best execution committees or institutional clients."

Commenting on the partnership, Brett Schechterman, Global Head of thinkFolio at IHS Markit, said, "The plug-and-play integration of thinkFolio with eLiSA offers our end-users a smooth workflow between two complementary technologies that are specialists in their respective fields. While eLiSA is primarily a trading technology, it also seeks to address portfolio managers' requirements from a liquidity and price discovery angle. These intraday market insights go hand-in-hand with thinkFolio's bottom-up analytics, exposure monitoring flexibility and sophisticated portfolio modelling capabilities. When married, as has been our objective with similar alliances focused on other asset classes, these technologies provide a cohesive workflow that enhances front-office productivity and perpetually enriches communication between portfolio managers and the trading desk."

What sort of impact can these types of efficiencies have over time? A recent report by Greenwich Associates, 'The Fixed-Income Trading System Evolution', found that every single basis point in IG spreads can equal US$1 billion in savings for end investors, and for less liquid assets the increase is greater.

thinkFolio and eLiSA bring mutual clients innovative and streamlined workflows by leveraging cloud-based APIs and one another's functional strengths across the investment lifecycle. Through the extension of thinkFolio's suite of interoperable alliances, our clients have access to a suite of best-in-class options to utilize across their operating models - from portfolio construction and pre-trade risk analytics to execution and post-trade performance attribution.

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.