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Liquidity: Fixing the present system

Amid the litany of complaints against the sell side, one trader at a large investment manager bemoans the continuing pretence of some banks that they are big traders in many instruments across all markets to all investors. He knows that they are not. Rather, dealers are conserving their ammunition to serve favoured clients and he understands why. He would just like to know where best to direct his business.

The buy-side trader lets slip that he has been asking Tradeweb, operator of one of the big client-to-dealer trading venues, to supply hard numbers on banks’ hit rates: the percentage of orders that clients actually manage to fill against their quotes.

"We’re not asking for their hit rates with specific institutional investors, or even in specific bonds, but for a general idea across various market segments. But Tradeweb won’t give us that data, citing client confidentiality."

He’s not giving up though. "I’m going to get the dealers on the call and ask them to give their consent for Tradeweb to give us that information."

In the meantime, he says: ‘We’re analysing every piece of information we can gather about each trade we complete and responses to each request we put out. All we want to do is direct our orders to dealers that might actually fill them."

What he’s likely to find probably won’t be terribly impressive. Various sources at the buy side and sell side contacted by Euromoney hazard broad guesses for hit rates of maybe 8% or lower across the markets, possibly as low as 4%.

Euromoney’s next call is to a sell-side dealer.

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