BCS Barclays PLC

By Julia-Ambra Verlaine 

Barclays PLC and data provider FactSet are teaming up to bolster transparency in the opaque bond markets.

The 325-year-old U.K. bank, run by Chief Executive Jes Staley, said Wednesday it is making a proprietary tool it uses to measure liquidity in more than 22,000 bonds available to subscribers of FactSet, leveraging its own internal data on $50 trillion of fixed-income securities.

Data is the next frontier for large investment banks, which sit between transactions executed as hedge funds, asset managers, pensions funds and insurers move money around the globe in financial markets.

Rival investment banks on Wall Street -- including Goldman Sachs Group Inc. and JPMorgan Chase & Co. -- have hired troves of data scientists and technologists to build new platforms and systems that can harness large amounts of information to glean insights into trading behavior or how financial instruments move.

"New data and technology are driving change across the investment industry at an unprecedented pace, and we are increasingly seeing this impact in fixed income," said Rich Newman, global head of content and technology solutions at FactSet.

The Barclays tool, known as the Liquidity Cost Scores (LCS), is a massive undertaking using computer programs to compile and analyze two-way prices made by human traders across a broad range of securities, from U.S. investment-grade bonds to emerging-market bonds.

Barclays created LCS in 2009, and it is intended to reflect the cost of an immediate, institutional-size, round-trip transaction. It is expressed as a percentage of the bond's price.

"Asset managers tend to prefer liquidity analytics that are intuitive" said Amy Mignosi, a member of the Barclays Live sales team, in an interview with The Wall Street Journal. "LCS is based off actual two-way quotes from our trading desks. Its calculation does not involve complex mathematical models."

Barclays was a first mover in building electronic-trading systems for currency markets in the early 2000s, alongside Deutsche Bank AG. Now it sees the benefit in monetizing its data around liquidity -- an issue that became a greater focus for investors after a series of hiccups in markets including the spike in repo rates in September 2019 and volatility in oil in August 2019.

Liquidity is a measure of how easy it is to buy or sell different investments. When it dries up, it has the power to dislocate prices, and at its most extreme it can bankrupt financial institutions or asset managers.

"Market liquidity is an ever-present concern for fixed-income portfolio managers," said Vadim Konstantinovsky, a senior Barclays quantitative research analyst, in an interview with the Journal. "Transaction-costs considerations always factor into their decision making. Many a strategy promising strong performance turns out unprofitable when the cost of execution is taken into account."

For FactSet, the deal underscores a trend in fixed-income markets: the quest for transparency.

While equities and currencies are mostly traded via electronic platforms, the bond markets have been slower to modernize. The majority of transactions remain "over-the-counter" -- meaning that they aren't cleared, trades aren't publicly listed, and they take place between two parties, usually over the phone or via electronic chats.

But that is starting to change. Electronic trading in the corporate-bond market surged to 34% of investment grade corporate-bonds, according to a recent study by research by analytics firm Greenwich Associates.

(END) Dow Jones Newswires

January 15, 2020 13:43 ET (18:43 GMT)

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