#WeAreMarketMakers and the paradigm shift in liquidity provision

Rick Steves

This is a paradigm shift that will benefit asset managers, who can count on market-making firms as their liquidity partners offering transparency and presence.

FIA EPTA, the European industry body for independent market making companies, has launched a new campaign to promote better understanding of modern market making, what it does, and its benefits for wider society.

#WeAreMarketMakers seeks to inform and educate stakeholders on the important role that market makers play: from providing liquidity to the global financial markets, to supporting citizens’ pension pots, while debunking the myths surrounding the industry.

The campaign will also be publishing a number of research reports on the matter, the first being Liquidity in the Time of Covid, surveying European buy-side participants and revealing how market makers stepped up to help the asset managers when some of the traditional providers of risk capital partially withdrew from certain market segments in Europe in the early stages of the pandemic.

The report includes a number of key findings:

  •  91% of respondents noted improved access to automated and diverse sources of liquidity during the March-April 2020 volatility period compared to the crisis of 2008.
  • 77% of respondents increased their means of accessing liquidity electronically and automated trading during the pandemic.
  • 53% of respondents took the opportunity to diversify their means of who they trade with to access to liquidity.
  • 70% of respondents are engaging more with alternative liquidity providers

This is a paradigm shift that will benefit asset managers, who can count on market-making firms as their liquidity partners offering transparency and presence, and investors, who can trade instantly and with certainty, enabling them to adjust their investment strategies and manage their risk.

The survey was conducted by Redlap Consulting and commissioned by FIA EPTA. Rebecca Healey, founder of Redlap Consulting, said: “Covid-19 continues to redefine the trading landscape as the pandemic lifted the veil on the role market-makers can play in liquidity formation. Liquidity challenges in bond markets early in the pandemic created a vacuum forcing the buy-side, to find new trading partners and access points to liquidity – and market making firms stepped up to fill the void.

“Now as asset managers continue to partner more directly with these firms, they have been able to benefit from a wider, more diverse pool of counterparties in how and where they can execute investment strategies; while liquidity providers have the opportunity to re-position themselves and build new partnerships.”

Piebe Teeboom, Secretary General of the FIA European Principal Traders Association, said: “The clear message from this report is that asset managers have developed a far more detailed and positive understanding of market makers and the liquidity provision they offer.

 

 

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