Market makers cement role as liquidity partners to European buy-side, survey finds
28 September 2021 UK
Image: AdobeStock/Elenathewise
Market makers played a key role in providing liquidity to European pension funds and asset managers during the COVID-19 crisis, according to a report from Redlap Consulting.
Liquidity challenges during the early part of the pandemic generated a vacuum, forcing buy-side firms to find new trading partners and points of liquidity access, the report finds.
As asset managers partner more directly with market-maker firms, they have been able to diversify their trading counterparties, providing a wider pool of trading partners with whom they can execute their investment strategies.
Respondents said that they noted improved access to automated and diverse sources of liquidity during March and April 2020, compared with their equivalent experience during the 2008 financial crisis.
77 per cent of respondents said that they had increased their access to liquidity through electronic channels and automated trading during the COVID-19 pandemic.
70 per cent indicated that they are now dealing with large numbers of alternative liquidity providers and, more broadly, 53 per cent said they had expanded their range of trading counterparties to access liquidity.
The report was commissioned by FIA European Principal Traders Association, which represents Europe鈥檚 leading market-making firms.
Commenting on the report, Piebe Teeboom, secretary general of the FIA EPTA, said: 鈥淭he clear message from this report is that asset managers have developed a more detailed and positive understanding of market makers and the liquidity provision that they offer.
鈥淭he pandemic, and in particular the lockdowns, accelerated a longer-term shift towards screen-based trading as people were forced to find new ways of working.
鈥淭his created a watershed moment as the buy-side engaged more with market-making firms and consequently became more appreciative of the benefits of better and more transparent prices, the constant liquidity provision and optionality the firms offer.鈥�
The report was based on interviews with 30 global heads of trading at asset management firms, 57 per cent coming from the UK and 43 per cent based in Europe.
Liquidity challenges during the early part of the pandemic generated a vacuum, forcing buy-side firms to find new trading partners and points of liquidity access, the report finds.
As asset managers partner more directly with market-maker firms, they have been able to diversify their trading counterparties, providing a wider pool of trading partners with whom they can execute their investment strategies.
Respondents said that they noted improved access to automated and diverse sources of liquidity during March and April 2020, compared with their equivalent experience during the 2008 financial crisis.
77 per cent of respondents said that they had increased their access to liquidity through electronic channels and automated trading during the COVID-19 pandemic.
70 per cent indicated that they are now dealing with large numbers of alternative liquidity providers and, more broadly, 53 per cent said they had expanded their range of trading counterparties to access liquidity.
The report was commissioned by FIA European Principal Traders Association, which represents Europe鈥檚 leading market-making firms.
Commenting on the report, Piebe Teeboom, secretary general of the FIA EPTA, said: 鈥淭he clear message from this report is that asset managers have developed a more detailed and positive understanding of market makers and the liquidity provision that they offer.
鈥淭he pandemic, and in particular the lockdowns, accelerated a longer-term shift towards screen-based trading as people were forced to find new ways of working.
鈥淭his created a watershed moment as the buy-side engaged more with market-making firms and consequently became more appreciative of the benefits of better and more transparent prices, the constant liquidity provision and optionality the firms offer.鈥�
The report was based on interviews with 30 global heads of trading at asset management firms, 57 per cent coming from the UK and 43 per cent based in Europe.
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