1 00:00:11,160 --> 00:00:14,560 Speaker 1: Hello, and welcome to another episode of the Odd Loots Podcast. 2 00:00:14,640 --> 00:00:19,080 Speaker 1: I'm Tracy Alloway and I'm Joe Wisenthal. Joe, the day 3 00:00:19,239 --> 00:00:24,040 Speaker 1: has come. I know, I know where you're going with this. 4 00:00:25,040 --> 00:00:28,840 Speaker 1: I'm excited, are you? Are you? It's the end of 5 00:00:28,960 --> 00:00:34,160 Speaker 1: odd Lots odd Lots. Wait, the end of odd Lots 6 00:00:34,280 --> 00:00:36,800 Speaker 1: odd Lots, or another way of looking at it is 7 00:00:36,960 --> 00:00:40,120 Speaker 1: it's the odd Lots odd Lots. It's add thoughts all 8 00:00:40,159 --> 00:00:43,400 Speaker 1: the way down, just before we freak everyone out. Is 9 00:00:43,440 --> 00:00:47,240 Speaker 1: odd Lots coming to an end? I'm not no, Okay, 10 00:00:47,760 --> 00:00:50,599 Speaker 1: this is not the end of the Odd Loots Podcast 11 00:00:50,800 --> 00:00:55,320 Speaker 1: as we know it. It is, however, I'm relieved. Yes, 12 00:00:55,480 --> 00:00:58,040 Speaker 1: it's good for both of us. It is, however, the 13 00:00:58,120 --> 00:01:02,760 Speaker 1: episode in which we just gus the possible end of 14 00:01:02,920 --> 00:01:08,039 Speaker 1: odd Lots trading as we know it. Yeah. So this 15 00:01:08,120 --> 00:01:10,919 Speaker 1: is something we've never really talked about, I don't think, 16 00:01:11,240 --> 00:01:14,200 Speaker 1: which is where our name of the podcast comes from. 17 00:01:14,280 --> 00:01:16,360 Speaker 1: I'm not sure if we've ever even really approached that, 18 00:01:16,400 --> 00:01:19,120 Speaker 1: have we No? I think we just sort of threw 19 00:01:19,120 --> 00:01:21,880 Speaker 1: it out there and started recording. But for those people 20 00:01:22,120 --> 00:01:26,080 Speaker 1: that don't know, odd thoughts, it's basically a term that 21 00:01:26,200 --> 00:01:33,440 Speaker 1: describes a order for stocks or bonds of an unusual size. 22 00:01:33,520 --> 00:01:37,920 Speaker 1: Basically often it's it's small orders of bonds or stocks. 23 00:01:37,959 --> 00:01:40,000 Speaker 1: So it's like, if you were to place an order 24 00:01:40,040 --> 00:01:44,399 Speaker 1: for I don't know, seven shares of a company or 25 00:01:44,400 --> 00:01:48,000 Speaker 1: something like that, something weird, that's not the normal increment, 26 00:01:48,440 --> 00:01:51,840 Speaker 1: that would be an odd lot, something irregular. Yeah, exactly. 27 00:01:52,200 --> 00:01:54,559 Speaker 1: And from what I remember, we chose the name, well, 28 00:01:55,080 --> 00:01:57,600 Speaker 1: we're looking for something catchy, and I thought Odd Thoughts 29 00:01:57,720 --> 00:02:00,960 Speaker 1: also sort of described the ethos of the podcast in 30 00:02:01,000 --> 00:02:04,320 Speaker 1: the sense that we cover a lot of slightly random 31 00:02:04,560 --> 00:02:09,040 Speaker 1: ground sometimes right stories that don't typically quite fit perfectly 32 00:02:09,320 --> 00:02:13,840 Speaker 1: into the overall market themes. Because of course, stories that 33 00:02:13,919 --> 00:02:17,280 Speaker 1: fit uh nicely into the overall market stories are covered 34 00:02:17,320 --> 00:02:20,440 Speaker 1: in pretty uh pretty nice depth anywhere. I'm thinking, you know, 35 00:02:20,720 --> 00:02:23,200 Speaker 1: back to our old days of like studying the talking 36 00:02:23,240 --> 00:02:26,120 Speaker 1: about the cattle market, for example. You know, it doesn't 37 00:02:26,160 --> 00:02:30,560 Speaker 1: quite a fit into the typical markets reporting. No, there's 38 00:02:30,600 --> 00:02:33,600 Speaker 1: not enough cattle market coverage, that's for sure. Fish bubble, 39 00:02:34,320 --> 00:02:38,320 Speaker 1: that's right. But the reason we are actually finally talking 40 00:02:38,360 --> 00:02:41,720 Speaker 1: about Oddoughts themselves is because there's been a little bit 41 00:02:41,720 --> 00:02:44,760 Speaker 1: of news on this front. A few weeks ago Bloomberg 42 00:02:44,800 --> 00:02:47,880 Speaker 1: actually reported that I think it was JP Morgan and 43 00:02:48,040 --> 00:02:52,800 Speaker 1: City Group were shutting down their odd Lots trading desks forever. 44 00:02:53,080 --> 00:02:56,320 Speaker 1: So a big, big change for the odd Thoughts market, 45 00:02:56,480 --> 00:03:01,720 Speaker 1: so to speak. Right, so capital oh odd Lots is staying, 46 00:03:01,919 --> 00:03:05,760 Speaker 1: but lower ks oh odd Lots appear to be on 47 00:03:05,800 --> 00:03:07,880 Speaker 1: their way out, or at least, you know, people are 48 00:03:07,919 --> 00:03:11,040 Speaker 1: still going to be making purchases in random increments, but 49 00:03:11,120 --> 00:03:14,839 Speaker 1: the idea of a specific desk devoted to them, those 50 00:03:14,880 --> 00:03:18,000 Speaker 1: seemed to be on the way out. And we want 51 00:03:18,040 --> 00:03:21,359 Speaker 1: to know why exactly, And we actually have the perfect 52 00:03:21,520 --> 00:03:25,480 Speaker 1: guest to explain exactly what is happening. He's a recurring 53 00:03:25,760 --> 00:03:29,840 Speaker 1: Odd Thoughts guest. Uh, formerly at Goldman Sachs. Mr Chris 54 00:03:29,840 --> 00:03:34,160 Speaker 1: White now CEO at Bond Click and Viable Markets. Thank 55 00:03:34,160 --> 00:03:37,920 Speaker 1: you so much for coming on again. Well, it's my pleasure. 56 00:03:38,360 --> 00:03:40,280 Speaker 1: I want to ask though before we get started. Now, 57 00:03:40,320 --> 00:03:45,280 Speaker 1: my the first three time Odd Lots guest. Uh. Yeah, 58 00:03:45,360 --> 00:03:47,720 Speaker 1: We've had a number of two time guests. I think 59 00:03:47,720 --> 00:03:49,480 Speaker 1: you are the first three time. Well I was told 60 00:03:49,480 --> 00:03:52,000 Speaker 1: by your producers that there would be something for me, 61 00:03:52,080 --> 00:03:54,880 Speaker 1: so I'll be waiting after the show. I think it's 62 00:03:54,920 --> 00:03:59,200 Speaker 1: called the Steve Martin Award a special jacket. Maybe exactly. Well, 63 00:03:59,680 --> 00:04:01,960 Speaker 1: I'm world to be here. I'm actually a true fan 64 00:04:02,120 --> 00:04:04,560 Speaker 1: of the Odd Lots podcast. Um, you've got a couple 65 00:04:04,600 --> 00:04:08,280 Speaker 1: of of my all time favorite podcasts in your catalog, 66 00:04:08,480 --> 00:04:11,960 Speaker 1: particularly the one that you did with Uh Andrew Lowe. 67 00:04:12,400 --> 00:04:16,640 Speaker 1: I think the Adaptive Markets podcast was awesome and then, um, 68 00:04:16,680 --> 00:04:18,680 Speaker 1: just so listening to the origin story of how you 69 00:04:18,720 --> 00:04:21,159 Speaker 1: came up with the name was fascinating for me as 70 00:04:21,200 --> 00:04:24,440 Speaker 1: a true fan. But I'm happy to do what I 71 00:04:24,480 --> 00:04:26,919 Speaker 1: think I've been brought in. I'm sort of the designated 72 00:04:26,960 --> 00:04:29,119 Speaker 1: hitter when it comes to talking about innovation and credit. 73 00:04:29,320 --> 00:04:32,080 Speaker 1: Did you think that when you were invited on today's 74 00:04:32,240 --> 00:04:34,159 Speaker 1: episode to talk about the end of Odd Lodge that 75 00:04:34,160 --> 00:04:36,120 Speaker 1: we were going to be doing some sort of retrospective 76 00:04:36,200 --> 00:04:37,719 Speaker 1: and yet you were actually gonna talk about the end 77 00:04:37,720 --> 00:04:40,920 Speaker 1: of the podcast. Okay, so absolutely, and I'm not embarrassed 78 00:04:40,960 --> 00:04:42,960 Speaker 1: to say that. But I received an email from your 79 00:04:42,960 --> 00:04:44,760 Speaker 1: producer saying we want you to talk about the end 80 00:04:44,800 --> 00:04:46,880 Speaker 1: of Odd Lots. And I replied and I said, I'm 81 00:04:46,920 --> 00:04:50,000 Speaker 1: really sorry that the show is going away, thanks for 82 00:04:50,040 --> 00:04:52,800 Speaker 1: having me on the farewell and Uh he was like, 83 00:04:52,920 --> 00:04:54,800 Speaker 1: I don't know what you're talking about, but as you 84 00:04:54,839 --> 00:04:57,760 Speaker 1: can you can see the title end of odd lots 85 00:04:57,800 --> 00:04:59,800 Speaker 1: for this for this one does sound like you guys 86 00:04:59,839 --> 00:05:01,480 Speaker 1: are closing up shop. But I'm so glad to hear 87 00:05:01,480 --> 00:05:03,800 Speaker 1: that it's still going on. And I'm also glad to 88 00:05:04,240 --> 00:05:07,040 Speaker 1: clear up what I think is a misconception about what's 89 00:05:07,080 --> 00:05:09,200 Speaker 1: happening with odd lots. So let me know when you 90 00:05:09,200 --> 00:05:12,279 Speaker 1: guys want to get into it, let's do it. Okay. 91 00:05:12,400 --> 00:05:15,800 Speaker 1: So the art, the articles or the the recent news 92 00:05:15,880 --> 00:05:19,440 Speaker 1: items around the closing up of desks at JP Morgan 93 00:05:19,520 --> 00:05:21,880 Speaker 1: and City are not that they're they're going to stop 94 00:05:21,880 --> 00:05:25,000 Speaker 1: trading odd lots anymore. They're actually doing something that Goldman 95 00:05:25,520 --> 00:05:27,560 Speaker 1: did I think probably about two or three years ago, 96 00:05:27,880 --> 00:05:31,200 Speaker 1: which is really take the human element out of odd 97 00:05:31,240 --> 00:05:35,520 Speaker 1: lots trading in the corporate bond space. And to further 98 00:05:35,839 --> 00:05:39,000 Speaker 1: add to your description, Tracy, an odd lot, I would 99 00:05:39,000 --> 00:05:42,160 Speaker 1: say in the corporate bond market, not all lot odd 100 00:05:42,160 --> 00:05:45,360 Speaker 1: lots are created equal. We would consider there to be 101 00:05:45,920 --> 00:05:48,799 Speaker 1: odd lots and then micro lots, which would be really 102 00:05:48,839 --> 00:05:53,920 Speaker 1: anything below let's call uh two hundred um bonds or 103 00:05:53,960 --> 00:05:57,039 Speaker 1: two hundred thousand notional. So there's sort of an in between. 104 00:05:57,080 --> 00:05:59,280 Speaker 1: And also it's sort of changes depending on what you're trading, 105 00:05:59,279 --> 00:06:02,400 Speaker 1: and and really what you look at is the trade 106 00:06:02,480 --> 00:06:05,720 Speaker 1: size relative to the outstanding size of the bond is 107 00:06:05,760 --> 00:06:08,760 Speaker 1: going to determine whether it's an odd lot. So anything 108 00:06:08,800 --> 00:06:11,839 Speaker 1: below a million in investment grade is generally considered an 109 00:06:11,880 --> 00:06:14,880 Speaker 1: odd lot, but anything below five hundred thousand in high 110 00:06:14,960 --> 00:06:18,039 Speaker 1: yield is generally considered an odd lot. So before we 111 00:06:18,120 --> 00:06:19,560 Speaker 1: jump into this, I want to make sure that there's 112 00:06:19,560 --> 00:06:22,920 Speaker 1: a level setting. So Chris, just on that note, before 113 00:06:22,920 --> 00:06:25,279 Speaker 1: we talk about what is changing when it comes to 114 00:06:25,360 --> 00:06:29,760 Speaker 1: trading of odd lots. Who would be trading odd lots currently? 115 00:06:29,839 --> 00:06:33,600 Speaker 1: Like what type of investors are demanding these sort of 116 00:06:33,640 --> 00:06:38,320 Speaker 1: smaller or irregular size trades. Sure, so, pure retail investors 117 00:06:38,360 --> 00:06:42,120 Speaker 1: in the corporate bond space probably account for less than 118 00:06:42,160 --> 00:06:45,200 Speaker 1: half of a percent of average daily volume. They are 119 00:06:45,240 --> 00:06:48,480 Speaker 1: not like the equities market, and actually the equities market 120 00:06:48,520 --> 00:06:50,800 Speaker 1: of old um I would say anything prior to the 121 00:06:50,839 --> 00:06:55,240 Speaker 1: nineteen sixties was really dominated by the retail investor. That 122 00:06:55,360 --> 00:06:57,440 Speaker 1: is not the way the bond market works. What we're 123 00:06:57,480 --> 00:07:00,440 Speaker 1: talking about is something I would call institutional odd lots, 124 00:07:00,440 --> 00:07:04,360 Speaker 1: and these are really the rebalancing trades. I would say 125 00:07:04,400 --> 00:07:07,120 Speaker 1: that occur in the marketplace where you know, we have 126 00:07:07,240 --> 00:07:12,480 Speaker 1: a hundred and fifty million dollar portfolio, uh, somebody tries 127 00:07:12,520 --> 00:07:16,040 Speaker 1: to sell thousand dollars of it, and so what do 128 00:07:16,120 --> 00:07:18,320 Speaker 1: we have to do. We've got to slice away a 129 00:07:18,320 --> 00:07:22,040 Speaker 1: piece of that portfolio and liquidated. And therefore, you know, 130 00:07:22,080 --> 00:07:25,640 Speaker 1: that creates smaller sized trades in the marketplace. And just 131 00:07:25,720 --> 00:07:28,080 Speaker 1: to give you a sense of the magnitude of this 132 00:07:28,280 --> 00:07:31,640 Speaker 1: activity or odd lots if we call them, uh in 133 00:07:31,840 --> 00:07:36,119 Speaker 1: um the corporate bond space, you know, typically eighty five 134 00:07:36,240 --> 00:07:40,080 Speaker 1: to of the total trades that occur in the market 135 00:07:40,120 --> 00:07:44,720 Speaker 1: on an average daily basis are in sizes less than 136 00:07:44,760 --> 00:07:48,400 Speaker 1: one million. But those trades only account for about fift 137 00:07:49,440 --> 00:07:51,960 Speaker 1: of the volume. So it's a lot of activity, but 138 00:07:52,040 --> 00:07:55,720 Speaker 1: it's it's not a lot of volume. What is it? 139 00:07:55,840 --> 00:07:59,680 Speaker 1: So before we could talk about why it's changing or 140 00:07:59,680 --> 00:08:02,280 Speaker 1: why the market structure around the trading of odd loves 141 00:08:02,360 --> 00:08:05,440 Speaker 1: is changing, let's talk about why it exists in the 142 00:08:05,480 --> 00:08:08,520 Speaker 1: way it currently is. Why would a bank have had 143 00:08:08,600 --> 00:08:12,120 Speaker 1: to have had a dedicated desk to trade these such 144 00:08:12,160 --> 00:08:14,400 Speaker 1: that they couldn't just be traded through the normal route. 145 00:08:14,560 --> 00:08:18,160 Speaker 1: Great questions. So if you look at the actual behavior 146 00:08:18,240 --> 00:08:21,920 Speaker 1: of electronic trading in the corporate bond space, the dominant 147 00:08:21,960 --> 00:08:24,960 Speaker 1: protocol is something called an RFQ, which I would best 148 00:08:25,000 --> 00:08:27,560 Speaker 1: describe to your listeners is it's an electronic phone call, 149 00:08:27,960 --> 00:08:30,640 Speaker 1: and it's you, as a as a by side asset 150 00:08:30,680 --> 00:08:33,280 Speaker 1: manager being able to say to the market, Hey, I'm 151 00:08:33,320 --> 00:08:37,120 Speaker 1: looking for a bid on IBM five year bonds. Who's 152 00:08:37,160 --> 00:08:40,040 Speaker 1: out there interested in giving me a bid? And so 153 00:08:40,240 --> 00:08:45,480 Speaker 1: making that electronic phone call to ten dealers twenty uh 154 00:08:46,240 --> 00:08:48,480 Speaker 1: nine d dealers. At some at some point in time, 155 00:08:48,760 --> 00:08:51,840 Speaker 1: that became the way to trade a certain type of 156 00:08:52,559 --> 00:08:54,560 Speaker 1: or or to way to execute certain types of trade 157 00:08:54,559 --> 00:08:57,000 Speaker 1: in the corporate bond market. But if you look a 158 00:08:57,040 --> 00:09:01,400 Speaker 1: little bit further, the most uh the most popular way 159 00:09:01,440 --> 00:09:04,439 Speaker 1: to trade odd lots in through something called a list form, 160 00:09:04,480 --> 00:09:07,640 Speaker 1: which would be a bid wanted in competition list or 161 00:09:07,679 --> 00:09:09,839 Speaker 1: an offer wanted in competition list. We call it b 162 00:09:09,920 --> 00:09:12,600 Speaker 1: wicks and oh wicks in the business. And what that is, 163 00:09:12,679 --> 00:09:17,120 Speaker 1: it's a list of individual accusips that you want to trade. 164 00:09:17,400 --> 00:09:21,040 Speaker 1: And typically these lists, the individual line items are pretty small. 165 00:09:21,280 --> 00:09:24,760 Speaker 1: You know, five bonds here, twenty bonds there. Now, these 166 00:09:24,840 --> 00:09:28,480 Speaker 1: lists used to be processed manually, and typically a list 167 00:09:28,640 --> 00:09:31,720 Speaker 1: would take I would say maybe three to four hours 168 00:09:31,800 --> 00:09:35,880 Speaker 1: to process from front to back. And the dominant electronic 169 00:09:35,880 --> 00:09:38,560 Speaker 1: trading system and credit uh place I worked for called 170 00:09:38,600 --> 00:09:42,120 Speaker 1: market Access. Their their claim to fame, they're They're. What 171 00:09:42,160 --> 00:09:47,040 Speaker 1: they solved was turning that process, the list trading process, 172 00:09:47,120 --> 00:09:51,240 Speaker 1: into something that was leveraging technology. And nobody could deny 173 00:09:51,320 --> 00:09:54,560 Speaker 1: the efficiency of turning something that took four hours into 174 00:09:54,559 --> 00:09:57,280 Speaker 1: ten minutes. Nobody could deny the benefits of it. So 175 00:09:57,360 --> 00:09:59,600 Speaker 1: imagine you're an asset manager. You need to buy your 176 00:09:59,600 --> 00:10:02,480 Speaker 1: sell a group of bonds. An electronic system is the 177 00:10:02,480 --> 00:10:04,440 Speaker 1: best way to do it because you can tell a 178 00:10:04,440 --> 00:10:06,559 Speaker 1: bunch of people these are the bonds I'm interested in trading, 179 00:10:06,800 --> 00:10:08,840 Speaker 1: and the system will then take all of the best 180 00:10:08,840 --> 00:10:11,200 Speaker 1: bids and offers and present them back to you within 181 00:10:11,240 --> 00:10:13,080 Speaker 1: a ten minute period and then you can just say 182 00:10:13,360 --> 00:10:16,240 Speaker 1: trade them all and you go about your day. So 183 00:10:16,520 --> 00:10:20,040 Speaker 1: I think the last time I heard it about of 184 00:10:20,080 --> 00:10:23,320 Speaker 1: the volume on market Access was comprised of these lists. 185 00:10:24,440 --> 00:10:27,720 Speaker 1: So talk to us then about the decision by JP 186 00:10:27,840 --> 00:10:30,600 Speaker 1: Morgan and City Group to disband the actual odd lots 187 00:10:30,640 --> 00:10:32,920 Speaker 1: trading desk. What do you think is going on there 188 00:10:33,080 --> 00:10:38,439 Speaker 1: and what are they eventually moving towards. So uh markets 189 00:10:38,440 --> 00:10:42,120 Speaker 1: are adapting and changing, and so the the environment for 190 00:10:42,240 --> 00:10:46,559 Speaker 1: trading electronically has had some radical shifts in the corporate 191 00:10:46,559 --> 00:10:50,800 Speaker 1: bond space or meaningful shifts permanent ones, and those shifts 192 00:10:50,800 --> 00:10:55,280 Speaker 1: are now changing the validity of having human beings actually 193 00:10:55,480 --> 00:10:59,000 Speaker 1: performed the odd lot trading function on the cell side, 194 00:10:59,320 --> 00:11:02,920 Speaker 1: because it's a big coming less profitable. I believe one 195 00:11:02,960 --> 00:11:05,959 Speaker 1: of the biggest changes to the biggest changes actually would 196 00:11:05,960 --> 00:11:09,840 Speaker 1: be the just growth in in in passive funds. You know, 197 00:11:09,880 --> 00:11:14,120 Speaker 1: so e t fs are huge component of electronic trading, 198 00:11:14,120 --> 00:11:17,079 Speaker 1: and they've been growing. I think that the fixed income 199 00:11:17,120 --> 00:11:20,800 Speaker 1: et F a u UM just surpassed one trillion recently 200 00:11:20,840 --> 00:11:23,280 Speaker 1: I saw, so you know, it's it's still not as 201 00:11:23,360 --> 00:11:27,079 Speaker 1: big as the actively managed funds that are out there, 202 00:11:27,160 --> 00:11:29,960 Speaker 1: not even close, but it is becoming significant. And if 203 00:11:29,960 --> 00:11:32,040 Speaker 1: you think about what is an e t F, it's 204 00:11:32,080 --> 00:11:34,640 Speaker 1: people trading these baskets of bonds that are supposed to 205 00:11:34,720 --> 00:11:38,199 Speaker 1: represent an index. So that's been driving the activity, it's 206 00:11:38,200 --> 00:11:40,600 Speaker 1: really been pushing it. And then the other thing that's 207 00:11:40,640 --> 00:11:44,080 Speaker 1: happened is the systems used to be set so that 208 00:11:44,960 --> 00:11:48,880 Speaker 1: you know, a bye side asset manager could send inquiries 209 00:11:48,880 --> 00:11:52,320 Speaker 1: out only to the cell side, so only two dealers, 210 00:11:53,080 --> 00:11:54,600 Speaker 1: and so those are the people you could make your 211 00:11:54,600 --> 00:11:56,160 Speaker 1: phone calls to and say, hey, do you have a bid? 212 00:11:56,640 --> 00:12:00,199 Speaker 1: But now these systems have started creating what's called all 213 00:12:00,200 --> 00:12:03,000 Speaker 1: to all our few trading, which is I'm black Rock 214 00:12:03,120 --> 00:12:05,320 Speaker 1: and I could send an inquiry that could show up 215 00:12:05,320 --> 00:12:10,679 Speaker 1: on pimco's desk. And the impact of that is obviously 216 00:12:10,800 --> 00:12:15,040 Speaker 1: greater competition. And so you're going from from particularly with 217 00:12:15,080 --> 00:12:17,520 Speaker 1: market Access, a system that probably had about eighty dealers 218 00:12:17,559 --> 00:12:19,200 Speaker 1: on it that could respond to your inquiry if your 219 00:12:19,200 --> 00:12:22,280 Speaker 1: black Rock, to a system that now has seven people 220 00:12:22,280 --> 00:12:24,720 Speaker 1: on it that could potentially respond to your inquiry. Now, 221 00:12:24,800 --> 00:12:28,080 Speaker 1: what this does for just odd lot trading or really 222 00:12:28,080 --> 00:12:30,160 Speaker 1: any market is more people are in the market, it's 223 00:12:30,160 --> 00:12:33,160 Speaker 1: going to become more competitive, and certain trading styles are 224 00:12:33,160 --> 00:12:35,040 Speaker 1: going to go away. And I think that's where we 225 00:12:35,360 --> 00:12:37,400 Speaker 1: get to this question as to whether or not human 226 00:12:37,440 --> 00:12:41,079 Speaker 1: beings on the seal side should be handling odd lot 227 00:12:41,120 --> 00:13:01,959 Speaker 1: trading in a manual fashion. Chris, you mentioned the notion 228 00:13:02,160 --> 00:13:06,200 Speaker 1: of basically by side players getting in on these platforms 229 00:13:06,240 --> 00:13:10,240 Speaker 1: and being able to deal with other by side players. 230 00:13:10,320 --> 00:13:13,480 Speaker 1: And this is probably I would say the biggest difference 231 00:13:13,679 --> 00:13:16,520 Speaker 1: in the past three years or so since you first 232 00:13:16,520 --> 00:13:20,000 Speaker 1: started coming onto odd Lots. The episode is that we 233 00:13:20,040 --> 00:13:22,800 Speaker 1: do have this all to all participation when it comes 234 00:13:22,840 --> 00:13:25,720 Speaker 1: to corporate bond dealing, and a lot of people expected 235 00:13:25,960 --> 00:13:29,880 Speaker 1: that would never happen because dealer banks basically wouldn't want 236 00:13:29,920 --> 00:13:33,920 Speaker 1: to give up a really lucrative business i e. Facilitating 237 00:13:33,960 --> 00:13:37,160 Speaker 1: all these bond trades. How did it come to pass? Like, 238 00:13:37,320 --> 00:13:40,760 Speaker 1: what was the breakthrough moment here? Well? I think the 239 00:13:40,800 --> 00:13:44,320 Speaker 1: first thing is you is it really lucrative. It's on 240 00:13:44,320 --> 00:13:49,280 Speaker 1: a relative basis market making and odd lots is not uh, 241 00:13:49,360 --> 00:13:53,560 Speaker 1: something that major banks can can really you know, profit 242 00:13:53,600 --> 00:13:56,280 Speaker 1: from in the same way they would from from institutional trading, 243 00:13:56,880 --> 00:14:01,200 Speaker 1: so you know bespoke or or by lateral trades of 244 00:14:01,280 --> 00:14:05,440 Speaker 1: significant size. That's the engine that drives profit profitability. The 245 00:14:05,480 --> 00:14:07,480 Speaker 1: other thing is you have to look at the quality 246 00:14:07,760 --> 00:14:11,920 Speaker 1: of h order flow that you're seeing on these platforms. 247 00:14:12,000 --> 00:14:16,000 Speaker 1: It's it's particularly low quality these lists for example that 248 00:14:16,080 --> 00:14:20,240 Speaker 1: gets sent out. I mean everything's in competition. A lot 249 00:14:20,280 --> 00:14:23,520 Speaker 1: of times it's in bonds that are actively traded, so 250 00:14:23,600 --> 00:14:26,880 Speaker 1: the spreads have already collapsed. So you know, there's a 251 00:14:26,920 --> 00:14:30,200 Speaker 1: there's a lot of energy that goes into responding to 252 00:14:30,560 --> 00:14:33,680 Speaker 1: trades on these systems, and so you know, you have 253 00:14:33,760 --> 00:14:36,000 Speaker 1: to look at what the output is. The other thing 254 00:14:36,080 --> 00:14:39,200 Speaker 1: that I think people are not aware of is that 255 00:14:39,240 --> 00:14:42,680 Speaker 1: when you think about automated trading or electronic trading and 256 00:14:42,720 --> 00:14:45,960 Speaker 1: other asset classes, especially from a market making standpoint, you 257 00:14:45,960 --> 00:14:48,120 Speaker 1: think of it as being a very low risk endeavor. 258 00:14:48,720 --> 00:14:49,840 Speaker 1: And I can tell you that if you're going to 259 00:14:49,920 --> 00:14:52,600 Speaker 1: run a meaningful odd lock desk in which you're going 260 00:14:52,640 --> 00:14:56,800 Speaker 1: to be responding consistently as a dealer, you're probably gonna 261 00:14:56,840 --> 00:14:59,240 Speaker 1: have to have, you know, a balance sheet anywhere. I 262 00:14:59,240 --> 00:15:02,680 Speaker 1: mean in minimum you know, two million in up is 263 00:15:02,720 --> 00:15:05,240 Speaker 1: what you'd have to have in terms of balance sheet 264 00:15:05,280 --> 00:15:09,160 Speaker 1: set aside, because the bonds don't turn over that quickly. 265 00:15:09,520 --> 00:15:11,720 Speaker 1: So if you're going to be a player, then you've 266 00:15:11,720 --> 00:15:14,080 Speaker 1: got to hold positions and so you know, you've got 267 00:15:14,200 --> 00:15:15,560 Speaker 1: to balance a bunch of things here, like is that 268 00:15:15,600 --> 00:15:18,680 Speaker 1: balance sheet better used in other places? Is this trader 269 00:15:18,880 --> 00:15:22,720 Speaker 1: better and there? And they're sort of human judgment better 270 00:15:22,760 --> 00:15:24,720 Speaker 1: applied to other areas of the market that could make 271 00:15:24,720 --> 00:15:27,040 Speaker 1: more money, And I think that's that's one of the 272 00:15:27,040 --> 00:15:30,440 Speaker 1: things that's sort of driving this decision um is what's 273 00:15:30,480 --> 00:15:32,880 Speaker 1: the best way to deal with low quality order flow? 274 00:15:33,000 --> 00:15:35,760 Speaker 1: And I think it's you know, put a computer around it. 275 00:15:36,440 --> 00:15:40,240 Speaker 1: So you mentioned this rise of all to all trading 276 00:15:40,280 --> 00:15:43,680 Speaker 1: and this idea that a bye side player could put 277 00:15:43,680 --> 00:15:45,840 Speaker 1: out some sort of request and it lands on the 278 00:15:45,920 --> 00:15:50,400 Speaker 1: desk of other by side players, and theoretically someone listens 279 00:15:50,440 --> 00:15:52,560 Speaker 1: to that and like, that's great, cut out the middleman, 280 00:15:52,800 --> 00:15:55,960 Speaker 1: and who wouldn't want that? And tighter spreads and all that. 281 00:15:56,640 --> 00:16:00,160 Speaker 1: It sounds really nice, But what are the drawback x 282 00:16:00,200 --> 00:16:02,440 Speaker 1: to that? And I think one of the first times 283 00:16:02,480 --> 00:16:05,320 Speaker 1: we talked, we were talking about bond market liquidity and 284 00:16:05,360 --> 00:16:07,920 Speaker 1: that was probably from time to time becomes a source 285 00:16:07,960 --> 00:16:12,240 Speaker 1: of concern. And can the all to all environment offer 286 00:16:12,280 --> 00:16:16,400 Speaker 1: as much liquidity as dedicated desks that hold balance sheet 287 00:16:16,480 --> 00:16:19,440 Speaker 1: that are there too. What are the pluses and minuses 288 00:16:19,520 --> 00:16:22,280 Speaker 1: of this new arrangement and how big can it really get? Sure? 289 00:16:22,600 --> 00:16:26,000 Speaker 1: So actually I wrote a blog about this called big 290 00:16:26,080 --> 00:16:29,800 Speaker 1: foot and by side Liquidity, the theme being that these 291 00:16:29,840 --> 00:16:32,800 Speaker 1: are two things that people ardently believe in, but there's 292 00:16:32,800 --> 00:16:35,920 Speaker 1: no physical evidence that either one of them actually exists 293 00:16:35,920 --> 00:16:39,280 Speaker 1: in a meaningful way. So you know, the the market 294 00:16:39,320 --> 00:16:41,960 Speaker 1: Access in particular has been going after this all to 295 00:16:42,040 --> 00:16:45,840 Speaker 1: all protocol for seven years now, and they're the most 296 00:16:46,040 --> 00:16:51,360 Speaker 1: well networked apparatus for facilitating trading amongst customers. I think 297 00:16:51,680 --> 00:16:55,200 Speaker 1: that nobody would disagree with that. However, after seven years 298 00:16:55,200 --> 00:16:57,360 Speaker 1: agoing after it, I think that if you look at 299 00:16:57,360 --> 00:17:00,400 Speaker 1: the pure numbers, it's less than two percent of average 300 00:17:00,440 --> 00:17:02,240 Speaker 1: daily market share is trading on a by side to 301 00:17:02,280 --> 00:17:04,399 Speaker 1: by side basis, and this is based on market access 302 00:17:04,440 --> 00:17:07,359 Speaker 1: is numbers. The other thing that we're not seeing is 303 00:17:07,440 --> 00:17:10,800 Speaker 1: the details of what is trading on a by side 304 00:17:10,800 --> 00:17:14,080 Speaker 1: to by side basis. I would imagine that it's the 305 00:17:14,119 --> 00:17:17,800 Speaker 1: bonds that are easiest to trade. So I think where 306 00:17:17,840 --> 00:17:21,120 Speaker 1: the the the sort of misunderstanding comes into places that 307 00:17:21,520 --> 00:17:25,120 Speaker 1: by side to by side trading would somehow improve overall 308 00:17:25,119 --> 00:17:27,679 Speaker 1: liquidity conditions. When I think that by side to by 309 00:17:27,720 --> 00:17:30,200 Speaker 1: side trading has done in not just the corporate bond market, 310 00:17:30,240 --> 00:17:33,119 Speaker 1: but every other market before it, it's just allowed you 311 00:17:33,160 --> 00:17:36,520 Speaker 1: to trade the things that were easier to trade more easily. Now, 312 00:17:36,640 --> 00:17:40,600 Speaker 1: is it helpful, absolutely, um, But is it addressing some 313 00:17:40,680 --> 00:17:43,000 Speaker 1: of the the issues that I see on the horizon 314 00:17:43,040 --> 00:17:45,000 Speaker 1: for this market. I don't think so in any way, 315 00:17:45,000 --> 00:17:48,200 Speaker 1: shape or form, and mainly because the things that are 316 00:17:48,200 --> 00:17:50,639 Speaker 1: people that people are having difficulty trading in this market, 317 00:17:50,640 --> 00:17:53,280 Speaker 1: the liquidity issues have never been in the things that 318 00:17:53,320 --> 00:17:57,080 Speaker 1: I suspect are are trading between customers. The liquidity issues 319 00:17:57,119 --> 00:17:59,520 Speaker 1: are occurring are occurring when you're trying to trade something 320 00:17:59,720 --> 00:18:01,439 Speaker 1: that early trades and you're trying to trade a lot 321 00:18:01,480 --> 00:18:04,240 Speaker 1: of it. And you know, that's where I think there's 322 00:18:04,240 --> 00:18:06,800 Speaker 1: a hole in the reasoning that this has any meaningful 323 00:18:07,320 --> 00:18:10,680 Speaker 1: improvement on the overall state of the market. Yeah, So, Chris, 324 00:18:10,720 --> 00:18:13,359 Speaker 1: I wanted to sort of press you on this point 325 00:18:13,440 --> 00:18:16,760 Speaker 1: because from time to time there is that bond market 326 00:18:16,800 --> 00:18:19,720 Speaker 1: liquidity issue that Joe brought up, and there's also the 327 00:18:19,760 --> 00:18:24,320 Speaker 1: notion that at some point the credit market is going 328 00:18:24,359 --> 00:18:28,600 Speaker 1: to experience some sort of massive sell off event after 329 00:18:28,760 --> 00:18:31,919 Speaker 1: years and years of rallying and arguably seeing you know, 330 00:18:32,280 --> 00:18:36,680 Speaker 1: over inflated valuations and and things like that, and people say, well, 331 00:18:37,359 --> 00:18:41,280 Speaker 1: a lot of the bond trading innovation that we've seen 332 00:18:41,440 --> 00:18:44,520 Speaker 1: is sort of getting ready for that moment. So people 333 00:18:44,600 --> 00:18:48,040 Speaker 1: need any outlet to trade bonds in a crisis that 334 00:18:48,080 --> 00:18:50,480 Speaker 1: they can get their hands on. But when it comes 335 00:18:50,520 --> 00:18:54,040 Speaker 1: to that big event, if it happens, how much are 336 00:18:54,080 --> 00:18:58,159 Speaker 1: those different types of trading platforms available actually going to 337 00:18:58,400 --> 00:19:03,480 Speaker 1: relieve pressure on the market. Yeah, this is we sort 338 00:19:03,520 --> 00:19:08,240 Speaker 1: of have this waiting for Godot approach to electronic trading where, 339 00:19:09,200 --> 00:19:11,800 Speaker 1: thanks to you know, modernized as at classes, people in 340 00:19:11,840 --> 00:19:14,840 Speaker 1: fixed income look at electronic trading as the savior and 341 00:19:14,920 --> 00:19:17,120 Speaker 1: it's going to fix all of the problems, and it's 342 00:19:17,119 --> 00:19:19,240 Speaker 1: just it doesn't really, it doesn't really work that way. 343 00:19:19,640 --> 00:19:22,720 Speaker 1: I don't think that. My person belief is I don't 344 00:19:22,760 --> 00:19:28,320 Speaker 1: think that an electronic trading system addresses the systemic problems 345 00:19:28,359 --> 00:19:32,399 Speaker 1: that are currently present in the corporate bond market, and 346 00:19:32,400 --> 00:19:35,080 Speaker 1: those systemic problems are The market is almost doubled in 347 00:19:35,119 --> 00:19:37,399 Speaker 1: size since two thousand and eight, but the way that 348 00:19:37,440 --> 00:19:40,880 Speaker 1: it's grown, it's gotten a lot riskier. The entire universe 349 00:19:40,880 --> 00:19:43,919 Speaker 1: of triple B credits, which are you know, bonds that 350 00:19:44,080 --> 00:19:47,719 Speaker 1: could be moving into high yield territory very easily. That 351 00:19:47,840 --> 00:19:50,520 Speaker 1: universe is now larger than the entire investment grade market 352 00:19:50,600 --> 00:19:54,479 Speaker 1: was in two thousand and eight. So these you've got 353 00:19:54,520 --> 00:19:56,439 Speaker 1: a bigger market, you've got a riscue market. And the 354 00:19:56,480 --> 00:19:59,440 Speaker 1: other thing that's happened is the length of the market. 355 00:19:59,440 --> 00:20:02,240 Speaker 1: The duration of the market has gotten um a lot longer, 356 00:20:02,680 --> 00:20:08,480 Speaker 1: so you know, typical you know, typically between uh, you know, 357 00:20:08,520 --> 00:20:11,480 Speaker 1: a new issue bond was about seven point five years 358 00:20:11,480 --> 00:20:16,480 Speaker 1: in maturity. Now typical typically the maturities are sixteen years. 359 00:20:16,520 --> 00:20:19,720 Speaker 1: So all of that is a big dangerous sign. Now 360 00:20:19,840 --> 00:20:22,040 Speaker 1: we keep on waiting. It's almost like waiting for the flood, 361 00:20:22,080 --> 00:20:24,040 Speaker 1: Like when is when a right credit market is going 362 00:20:24,040 --> 00:20:28,240 Speaker 1: to correct? Well, one thing that you've seen, you've seen 363 00:20:28,280 --> 00:20:32,879 Speaker 1: actually central banks turntail on their de you know, de 364 00:20:32,960 --> 00:20:35,440 Speaker 1: leveraging their balance sheet or the de risking their balance sheet. 365 00:20:35,720 --> 00:20:37,840 Speaker 1: And the reason why is, I think what you're seeing 366 00:20:37,840 --> 00:20:41,080 Speaker 1: now is, you know, the years and years of quantitative 367 00:20:41,119 --> 00:20:45,920 Speaker 1: easing have created an environment where if you start removing 368 00:20:46,680 --> 00:20:49,480 Speaker 1: the sugar from the system of this market, a bunch 369 00:20:49,520 --> 00:20:53,360 Speaker 1: of companies that are really on the edge because they 370 00:20:53,400 --> 00:20:57,679 Speaker 1: rely on really cheap debt that is facilitated by quantitative easing, 371 00:20:57,960 --> 00:20:59,800 Speaker 1: a bunch of those companies are going to have problems 372 00:20:59,800 --> 00:21:03,720 Speaker 1: fine dancing themselves, and that may start the cascading effect 373 00:21:03,920 --> 00:21:05,920 Speaker 1: of what we're looking at in terms of the Great 374 00:21:05,960 --> 00:21:08,919 Speaker 1: Flood So when I look at what's what's happened with 375 00:21:08,960 --> 00:21:11,600 Speaker 1: central banks where they were quite adamant that they were 376 00:21:11,600 --> 00:21:14,240 Speaker 1: going to stop direct bond buying and that that they're 377 00:21:14,280 --> 00:21:16,640 Speaker 1: going to try to return into the Fed funds rate 378 00:21:16,720 --> 00:21:19,640 Speaker 1: to something that resembles what we all grew up with. UM. 379 00:21:19,760 --> 00:21:21,800 Speaker 1: Now you're hearing a lot of caution around that because 380 00:21:21,840 --> 00:21:26,199 Speaker 1: I think that we're seeing such an immediate reaction to UM, 381 00:21:26,240 --> 00:21:28,560 Speaker 1: you know, changes in central bank policy and how it 382 00:21:28,600 --> 00:21:31,560 Speaker 1: affects the overall market. Now, when when it does start 383 00:21:31,560 --> 00:21:34,200 Speaker 1: to happen, when you do see people needing to move 384 00:21:34,960 --> 00:21:39,200 Speaker 1: large positions around UM that are that don't trade that often, 385 00:21:40,160 --> 00:21:43,040 Speaker 1: that that activity is not on any electronic trading platform 386 00:21:43,119 --> 00:21:44,840 Speaker 1: right now. So I don't know why we would assume 387 00:21:45,160 --> 00:21:47,119 Speaker 1: that all of a sudden, the electronic trading platforms are 388 00:21:47,160 --> 00:21:51,159 Speaker 1: going to be the destination of choice for UM. When 389 00:21:51,200 --> 00:21:56,720 Speaker 1: when this UH pronounced volatility starts starts taking form, So Chris, 390 00:21:56,720 --> 00:21:58,800 Speaker 1: just so that we don't leave it on UM a 391 00:21:58,880 --> 00:22:02,360 Speaker 1: sort of does master in the bond market. Note when 392 00:22:02,400 --> 00:22:09,080 Speaker 1: when you survey, when you survey UM the structure of 393 00:22:09,200 --> 00:22:12,439 Speaker 1: corporate bond trading of the market, and you look, you know, 394 00:22:12,520 --> 00:22:15,080 Speaker 1: say five or ten years into the future, what do 395 00:22:15,080 --> 00:22:17,560 Speaker 1: you think it's going to look like. Well, I've made 396 00:22:17,560 --> 00:22:20,800 Speaker 1: a bet that it's going to look a lot more 397 00:22:21,840 --> 00:22:25,880 Speaker 1: reliable from a liquidity standpoint. And you know, I think 398 00:22:25,880 --> 00:22:28,040 Speaker 1: one of the earlier podcasts I had with you guys 399 00:22:28,240 --> 00:22:31,600 Speaker 1: when we talked about the modernization of the market and 400 00:22:31,840 --> 00:22:34,439 Speaker 1: what needs to be built, and I ended up building it. 401 00:22:34,560 --> 00:22:35,879 Speaker 1: You know, since the last time I think it was 402 00:22:35,920 --> 00:22:39,040 Speaker 1: on here, we've made significant progress with building the first 403 00:22:39,040 --> 00:22:43,480 Speaker 1: consolidated quote system for the bond market. And consolidated quotes 404 00:22:43,520 --> 00:22:47,320 Speaker 1: are sort of the the fertilizer that you need in 405 00:22:47,440 --> 00:22:49,640 Speaker 1: order for the market to grow, the garden to grow. 406 00:22:49,920 --> 00:22:52,160 Speaker 1: And what it what you're doing is you're you're putting 407 00:22:52,280 --> 00:22:54,800 Speaker 1: high quality pre trade data into the market and making 408 00:22:54,800 --> 00:22:57,879 Speaker 1: it readily available for everyone. Now why is this important 409 00:22:58,640 --> 00:23:04,000 Speaker 1: Because you must eliminate ambiguity around or unnecessary ambiguity around 410 00:23:04,080 --> 00:23:07,040 Speaker 1: the value of something in order to improve its reliability 411 00:23:07,080 --> 00:23:10,119 Speaker 1: to trade it. So what we have is a market 412 00:23:10,240 --> 00:23:14,560 Speaker 1: that has grown very quickly, but especially on the side 413 00:23:14,600 --> 00:23:17,600 Speaker 1: of the market maker, their access to pricing data has 414 00:23:17,640 --> 00:23:20,520 Speaker 1: not improved. So you're asking a market maker to step 415 00:23:20,600 --> 00:23:24,520 Speaker 1: up consistently and provide risk transfer, to provide liquidity to 416 00:23:24,760 --> 00:23:27,240 Speaker 1: the buy side. But I think one of the major 417 00:23:27,280 --> 00:23:29,120 Speaker 1: challenges for the market maker is they don't have enough 418 00:23:29,119 --> 00:23:32,760 Speaker 1: market data to do so. And so, so, Joe, Joe 419 00:23:32,800 --> 00:23:34,480 Speaker 1: looks like you have a question on this. Yeah, I 420 00:23:34,520 --> 00:23:37,439 Speaker 1: just so just you know, going back to what you 421 00:23:37,480 --> 00:23:40,800 Speaker 1: were talking about the cell side having to allocate balance 422 00:23:40,840 --> 00:23:44,040 Speaker 1: sheet in order to uh, you know, remain a viable 423 00:23:44,080 --> 00:23:47,320 Speaker 1: player in these markets. What you're saying, basically is the 424 00:23:47,359 --> 00:23:49,840 Speaker 1: only way they're actually going to do that and continue 425 00:23:49,920 --> 00:23:51,720 Speaker 1: to be a part of that and to provide more 426 00:23:51,720 --> 00:23:54,199 Speaker 1: liquidity or the liquidity of the market needs is if 427 00:23:54,240 --> 00:23:57,040 Speaker 1: they can be comfortable that when someone calls up in 428 00:23:57,080 --> 00:24:00,159 Speaker 1: one of these electronic calls for quote or for a 429 00:24:00,280 --> 00:24:03,240 Speaker 1: um for a trade, they have to have some feel 430 00:24:03,280 --> 00:24:04,960 Speaker 1: at the ready of what a good price should be. 431 00:24:05,280 --> 00:24:07,800 Speaker 1: And that's what you're saying, is this sort of necessary 432 00:24:07,920 --> 00:24:11,240 Speaker 1: ingredient to provide and so what is that information look 433 00:24:11,320 --> 00:24:13,600 Speaker 1: like that allows them to do that. What's so fascinating 434 00:24:13,600 --> 00:24:16,000 Speaker 1: about your question is like it's right in front of us. 435 00:24:16,640 --> 00:24:19,400 Speaker 1: Any modernized market that you look at, the market makers 436 00:24:19,520 --> 00:24:22,320 Speaker 1: know what all of the prevailing prices are around them. 437 00:24:22,400 --> 00:24:24,560 Speaker 1: They know the prices from other market makers so that 438 00:24:24,600 --> 00:24:28,439 Speaker 1: they're able to properly calibrate their price. You do not 439 00:24:28,600 --> 00:24:31,879 Speaker 1: see markets that are You do not see any market 440 00:24:31,960 --> 00:24:35,000 Speaker 1: that's considered modern without some sort of apparatus that makes 441 00:24:35,000 --> 00:24:37,160 Speaker 1: it easier for the market maker to to be able 442 00:24:37,200 --> 00:24:40,440 Speaker 1: to make markets. We do not have a visible market 443 00:24:40,760 --> 00:24:44,200 Speaker 1: in the corporate bond space. There's no definitive best bid 444 00:24:44,240 --> 00:24:48,080 Speaker 1: best offer that's been established, and so without that, you 445 00:24:48,080 --> 00:24:50,000 Speaker 1: have to put yourself in the seat of a market maker. 446 00:24:50,119 --> 00:24:53,040 Speaker 1: Somebody calls you up and says, hey, Joe, I see 447 00:24:53,040 --> 00:24:56,480 Speaker 1: that you've got this bid for you know whatever, IBM 448 00:24:56,560 --> 00:24:59,040 Speaker 1: five year bonds. I'd love to sell you twenty million 449 00:24:59,119 --> 00:25:01,720 Speaker 1: of them. What's the first thing that you're gonna want 450 00:25:01,720 --> 00:25:04,760 Speaker 1: to know? Where's my bed? In the context of everyone else? 451 00:25:04,800 --> 00:25:06,919 Speaker 1: Am I too high? Am I? You know? Am I? 452 00:25:07,000 --> 00:25:10,000 Speaker 1: Through the offer side? All of those things, and um, 453 00:25:10,040 --> 00:25:12,720 Speaker 1: the dealers simply just don't have access to that information 454 00:25:12,720 --> 00:25:15,959 Speaker 1: in the marketplace. What we've seen historically is when you 455 00:25:16,000 --> 00:25:19,399 Speaker 1: give market makers that access, they trade with more confidence. 456 00:25:19,600 --> 00:25:21,719 Speaker 1: They're they're able to get better return on their balance 457 00:25:21,760 --> 00:25:24,800 Speaker 1: sheet because they can manage the risk better, and therefore 458 00:25:24,880 --> 00:25:29,320 Speaker 1: they're willing to offer more reliable institutional liquidity. So this 459 00:25:29,400 --> 00:25:32,080 Speaker 1: is not an original idea. And I think if people 460 00:25:32,119 --> 00:25:34,639 Speaker 1: go back in the Odd Lots archives and they look up, 461 00:25:34,680 --> 00:25:36,639 Speaker 1: I think it was called the the you know something 462 00:25:36,640 --> 00:25:39,879 Speaker 1: about the modernization of of of markets. We talked about 463 00:25:39,880 --> 00:25:42,119 Speaker 1: this in length, like what happened when the equity market 464 00:25:42,119 --> 00:25:44,720 Speaker 1: did this and what happened to those market makers? So 465 00:25:45,000 --> 00:25:46,880 Speaker 1: what do I see in five to ten years. I'm 466 00:25:46,880 --> 00:25:50,720 Speaker 1: pretty confident that because of the environmental shifts that have 467 00:25:50,760 --> 00:25:53,119 Speaker 1: occurred in the market, the adaptations that are going to 468 00:25:53,160 --> 00:25:56,600 Speaker 1: occur as dealers are going to become much more savvy 469 00:25:56,640 --> 00:26:01,160 Speaker 1: around the incorporation of data into how they provide liquidity 470 00:26:01,200 --> 00:26:04,960 Speaker 1: to customers. They have to. They're being forced the the 471 00:26:04,960 --> 00:26:06,959 Speaker 1: the limited amount of balance sheet they have to dedicate 472 00:26:07,000 --> 00:26:09,640 Speaker 1: to a market that's a lot bigger requires that they 473 00:26:09,680 --> 00:26:14,199 Speaker 1: have more honed risk management and inventory management techniques. And 474 00:26:14,240 --> 00:26:16,000 Speaker 1: the only way that you can manage your risk and 475 00:26:16,040 --> 00:26:18,600 Speaker 1: manage your inventory is if you've got access to the data. 476 00:26:19,000 --> 00:26:21,280 Speaker 1: So just to put it in context for you so 477 00:26:21,320 --> 00:26:23,760 Speaker 1: you can tie it all together. If I have all 478 00:26:23,800 --> 00:26:27,479 Speaker 1: of the available pricing information in the market as a dealer, 479 00:26:28,200 --> 00:26:30,880 Speaker 1: and I have i'm long or have on my books 480 00:26:30,920 --> 00:26:34,280 Speaker 1: a large position, I now know where I have to 481 00:26:34,359 --> 00:26:36,800 Speaker 1: offer the bonds consistently in order to give me the 482 00:26:36,840 --> 00:26:40,840 Speaker 1: best possible chance to get out of the position. And 483 00:26:40,920 --> 00:26:43,320 Speaker 1: this is what dealers are looking for, Like I need 484 00:26:43,359 --> 00:26:46,040 Speaker 1: those guide posts. You give me the guide posts that 485 00:26:46,119 --> 00:26:47,960 Speaker 1: I'm gonna be willing the next time you want to 486 00:26:48,000 --> 00:26:50,120 Speaker 1: trade a big position, I'm gonna I'm gonna be willing 487 00:26:50,119 --> 00:26:51,760 Speaker 1: to take it on my books because I at least 488 00:26:51,760 --> 00:26:53,679 Speaker 1: have some semblance of an idea of how I can 489 00:26:53,680 --> 00:26:56,639 Speaker 1: get out of it without me having to do a 490 00:26:56,760 --> 00:27:00,119 Speaker 1: forced or panicked sale. And you know, these aren't the 491 00:27:00,200 --> 00:27:03,320 Speaker 1: things that are being i think, discussed openly, but you 492 00:27:03,359 --> 00:27:05,840 Speaker 1: can see them in the numbers in terms of the 493 00:27:05,840 --> 00:27:10,280 Speaker 1: the the overall revenues declining for US corporate bond market 494 00:27:10,280 --> 00:27:12,840 Speaker 1: making year after year after year. I think that that's 495 00:27:12,840 --> 00:27:15,000 Speaker 1: just telling you, hey, the environment shifted. We've got to 496 00:27:15,000 --> 00:27:17,919 Speaker 1: do something differently. And I think the dealers have shown 497 00:27:18,000 --> 00:27:21,080 Speaker 1: in other another asset classes that you know, after a 498 00:27:21,119 --> 00:27:23,280 Speaker 1: few years of taking on the chin, they start to 499 00:27:23,320 --> 00:27:25,440 Speaker 1: rethink their business model. And I think a data driven 500 00:27:25,440 --> 00:27:27,560 Speaker 1: business model is right on the horizon for for the 501 00:27:27,640 --> 00:27:31,480 Speaker 1: cull Side. All right, Well, Chris, it was lovely having 502 00:27:31,480 --> 00:27:34,800 Speaker 1: you on the show for the third time. You've made 503 00:27:34,840 --> 00:27:38,800 Speaker 1: the odd lots, odd lots possible, so thank you, and 504 00:27:39,080 --> 00:27:40,920 Speaker 1: we'll have to have you on again at some point 505 00:27:40,960 --> 00:27:44,200 Speaker 1: so you can retain your title of the most frequent 506 00:27:44,240 --> 00:27:46,800 Speaker 1: add thoughts guest. Yeah, I'm going to also get my 507 00:27:46,880 --> 00:27:50,240 Speaker 1: Steve Martin arrow through the head apparatus for for the 508 00:27:50,280 --> 00:27:54,720 Speaker 1: next one. I think it's absolutely a pleasure to be 509 00:27:54,760 --> 00:27:57,040 Speaker 1: on the show and you guys are doing great work. 510 00:27:57,160 --> 00:28:00,360 Speaker 1: Keep it quirky, keep it odd, and I look forward 511 00:28:00,359 --> 00:28:17,119 Speaker 1: to being back. So Joe, I don't even think I 512 00:28:17,160 --> 00:28:20,040 Speaker 1: have to tell you, but I really enjoyed that conversation. 513 00:28:20,200 --> 00:28:23,520 Speaker 1: It feels so nice to be talking about market structure again, 514 00:28:23,640 --> 00:28:26,800 Speaker 1: and not just any market structure, but the structure of 515 00:28:26,840 --> 00:28:29,800 Speaker 1: the corporate bond market, which is something that you know, 516 00:28:30,240 --> 00:28:33,159 Speaker 1: I in particular, I've been watching for some time now. No, 517 00:28:33,359 --> 00:28:36,720 Speaker 1: I really liked that episode two. It felt like a 518 00:28:36,800 --> 00:28:40,600 Speaker 1: classic topic for us. So it's kind of like double 519 00:28:40,640 --> 00:28:43,520 Speaker 1: e meta because a it was, you know, play on 520 00:28:43,520 --> 00:28:46,000 Speaker 1: our name, but more importantly, it felt right in our 521 00:28:46,000 --> 00:28:49,840 Speaker 1: wheelhouse of something that we should be talking about. So 522 00:28:50,120 --> 00:28:52,720 Speaker 1: I always learn a lot talking to Chris, And you know, 523 00:28:52,760 --> 00:28:55,080 Speaker 1: I don't know the corporate bond market nearly as much 524 00:28:55,120 --> 00:28:57,640 Speaker 1: as you do, but I find uh that sort of 525 00:28:58,000 --> 00:29:00,719 Speaker 1: I mean that goes without saying, but I find like, 526 00:29:00,800 --> 00:29:04,520 Speaker 1: just like thinking about these questions of market structure very interesting. 527 00:29:04,600 --> 00:29:06,880 Speaker 1: And what he was saying at the end about prices 528 00:29:07,840 --> 00:29:09,920 Speaker 1: is something that I think about a lot, and probably 529 00:29:10,000 --> 00:29:12,640 Speaker 1: inspired by past conversations with him, which is that I 530 00:29:12,640 --> 00:29:15,240 Speaker 1: think we sort of take prices for granted. Prices appear 531 00:29:15,280 --> 00:29:17,880 Speaker 1: on the screen, but someone had to get them and 532 00:29:18,000 --> 00:29:22,280 Speaker 1: someone had to put them together, and that process itself 533 00:29:22,360 --> 00:29:26,480 Speaker 1: is still being worked on. Is just a really interesting idea. Absolutely, 534 00:29:26,560 --> 00:29:28,600 Speaker 1: and sort of on a related point, but I thought 535 00:29:28,640 --> 00:29:31,240 Speaker 1: what Chris was saying about, you know, this notion that 536 00:29:31,360 --> 00:29:34,719 Speaker 1: market structure can suddenly fix all of the markets ills 537 00:29:34,920 --> 00:29:37,720 Speaker 1: is just totally out of whack. And if you're actually 538 00:29:37,760 --> 00:29:41,920 Speaker 1: worried about a bubble in corporate credit, then I don't 539 00:29:42,000 --> 00:29:45,760 Speaker 1: think having a very sleek training platform is really going 540 00:29:45,800 --> 00:29:48,400 Speaker 1: to help you much fundamentally with that issue. It might 541 00:29:48,440 --> 00:29:52,440 Speaker 1: help at the margins, but you know, ultimately you're talking 542 00:29:52,480 --> 00:29:55,240 Speaker 1: about overvaluations and when the time comes to sell, it 543 00:29:55,600 --> 00:29:58,320 Speaker 1: seems really unlikely that a training platform is going to 544 00:29:58,400 --> 00:30:04,560 Speaker 1: help you. Absolutely and just intuitively, intuitively, it sounds very attractive, 545 00:30:04,640 --> 00:30:07,080 Speaker 1: this idea that's like everyone can just you know, cut 546 00:30:07,080 --> 00:30:09,080 Speaker 1: out the middleman and trade with each other on some 547 00:30:09,200 --> 00:30:12,760 Speaker 1: sleek electronic platform. But what Chris is saying and just 548 00:30:12,840 --> 00:30:15,520 Speaker 1: sort of what's you know, very obviously different about the 549 00:30:15,600 --> 00:30:19,760 Speaker 1: corporate bond market is just how diverse it is and 550 00:30:19,840 --> 00:30:22,120 Speaker 1: how much of a range of different assets there are, 551 00:30:22,200 --> 00:30:25,040 Speaker 1: and so Yes, to Chris's point, it makes a lot 552 00:30:25,040 --> 00:30:28,040 Speaker 1: of sense that one of these new platforms could facilitate 553 00:30:28,680 --> 00:30:31,440 Speaker 1: easier trading and the really liquid stuff that everybody might 554 00:30:31,440 --> 00:30:34,400 Speaker 1: have access to. But where there but there's so much uh, 555 00:30:34,600 --> 00:30:37,400 Speaker 1: you know, esoteric paper out there in the bond market 556 00:30:37,560 --> 00:30:43,240 Speaker 1: and different versions of uh any given companies paper that 557 00:30:43,240 --> 00:30:45,600 Speaker 1: that problem is still needs to be solved. Is a 558 00:30:45,640 --> 00:30:49,240 Speaker 1: really good one and that's probably and just this idea 559 00:30:49,280 --> 00:30:53,040 Speaker 1: that also that's stad about um, how much bigger the 560 00:30:53,120 --> 00:30:56,200 Speaker 1: junk market has grown and how much longer and duration 561 00:30:56,280 --> 00:30:58,560 Speaker 1: it's gotten so that the nature of the market itself 562 00:30:58,600 --> 00:31:02,560 Speaker 1: has gotten significantly riskier over the last ten years is 563 00:31:02,600 --> 00:31:04,080 Speaker 1: a really good one and a really good one to 564 00:31:04,120 --> 00:31:07,720 Speaker 1: think about. You know this idea of an inevitable crisis 565 00:31:07,720 --> 00:31:11,760 Speaker 1: if it happens right. The triple B portion of the 566 00:31:12,000 --> 00:31:14,440 Speaker 1: investment grade market is what he was talking about, and 567 00:31:14,520 --> 00:31:17,040 Speaker 1: that's something that we've seen crop up a lot in 568 00:31:17,120 --> 00:31:21,080 Speaker 1: recent commentaries and worries about overheating in the bond market. 569 00:31:21,480 --> 00:31:24,360 Speaker 1: So we should definitely do some more episodes on that think. 570 00:31:24,480 --> 00:31:29,040 Speaker 1: Thank you for clarifying. Okay, sorry, no, I appreciate all right. 571 00:31:29,800 --> 00:31:33,000 Speaker 1: This has been another episode of the Odd Lots podcast. 572 00:31:33,120 --> 00:31:35,720 Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at 573 00:31:35,720 --> 00:31:38,800 Speaker 1: Tracy Alloway and I'm Joe Wisn'tal. You could follow me 574 00:31:38,960 --> 00:31:41,880 Speaker 1: on Twitter at the Stalwarts and you should follow Chris 575 00:31:41,920 --> 00:31:45,360 Speaker 1: on Twitter at Friday Newsletter and check out the Inside 576 00:31:45,400 --> 00:31:49,560 Speaker 1: Market blog at www dot bond click dot com, and 577 00:31:49,640 --> 00:31:52,720 Speaker 1: of course follow our producer on Twitter to for Foreheads. 578 00:31:52,720 --> 00:31:55,800 Speaker 1: He's at foreheads t, as well as the Bloomberg head 579 00:31:55,800 --> 00:32:12,960 Speaker 1: of podcast, Francesco Levy at Francesca Today. Thanks for listening 580 00:32:02,680 --> 00:32:02,720 Speaker 1: to