Sell-side fixed income desks can improve the success rate and pricing margin with respect to market risk, trade volume, stock capacity and various other factors in corporate bond automated trading.
Toronto And the New YorkAnd the October 5 2022 /PRNewswire/ – Overbond, the leading API-based credit trade automation and execution service in global capital markets, has integrated an AI-powered margin optimization function into its existing automated trading system. As a result, traders can now train the automated Overbond system to improve the success rate according to the desired trading parameters of the office. This increases the number of trade inquiries that traders can respond to without the intervention of the trader.
The development of new financial products, the emergence of all-encompassing electronic platforms, the emergence of non-trader liquidity providers that use algorithms and high-frequency trading, have all reshaped fixed income trading. Now, fixed income traders are facing increased volatility and evaporating liquidity on the back of rising interest rates, inflation and recession fears. Electronic and automated trading has become the new standard to meet these challenges to the profitability of credit bureaus.
So far, automated workflows have allowed traders to discover price and liquidity, but often they have required trader intervention to ensure trades adhere to the desired desk trading margins. This need for human intervention created a bottleneck in the workflow and prevented the full automation of many professions. Overbond has taken a step forward in fixed income trading by fully automating the margin optimization function within the Overbond automated trading system and data flow via the API.
The Overbond Margin Optimization Model optimizes the distance to coverage based on the best executable RFQ rate according to the Overbond pricing model, COBI-Pricing LIVE. The Margin model now includes variables that give insight into market risk at the security, source and macro level and ensure that Auto Margin is sensitive to intraday risk movements. This data is collected from data suppliers such as TRACE and includes bond-specific data such as coupon and amount due, issuer-specific data such as number of quotes and the issuer’s average price volatility, and sector-specific data such as sector-specific bid-ask spread volatility.
It is necessary to calculate the trading volume to fully automate the trading as it is an important factor in pricing and determining the required margin. To address this, the Overbond margin model estimates the total market capacity of each bond, which the model then uses to isolate margin sensitivity from trading volume.
Market risk and potential are calculated from the data available to all market participants, but offices gain their competitive advantage through the unique parameters they use to make their trading profitable. Any fully automated trading system must incorporate these parameters, so Overbond incorporates desk execution logs into its analytics, allowing automated trading to adhere to desk execution style, bias and margin approach.
“Achieving an optimal success rate is key to maximizing profits and losses for sell-side desks and incorporating automatic margin capabilities into the Overbond trading system enabling truly comprehensive automated trading that does not require human intervention,” he said. Fuk MajdelnikCEO of Overbond.
Overbond is a developer of redefining AI-driven processes, data, analytics, and trade automation solutions for the global fixed income markets. Overbond performs market monitoring, data aggregation and normalization, and deep AI quantitative monitoring on more than 300,000 corporate bonds and fixed income ETFs. Applying proprietary AI to pricing, curve visualization, market liquidity, issue slope, new issue spreads, default risk and automated reporting, Overbond enables trade automation and enhances trade performance and portfolio returns. Client TorontoHeadquartered Overbond includes global investment banks, broker-dealers, institutional investors, corporations, and governments across the Americas, Europe And the Asia. For more information, please visit the website www.overbond.com.
SOURCE Overbond Ltd.