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"Odd lots with the end of odd, lots odd lots or another way of looking at it is it's the thoughts odd lots. All the way down just before we freak. Everyone out is out. Lots coming to an end. I'm not. No, okay. This is not the end of the ALDE lots podcast, as we know it. It is. However, I'm relieved. Yes. It's good for both of us. It is however the episode in which we discuss the possible end of odd lots trading as we know it. So this is something we've never really talked about. I don't think which is where our name of the podcast comes from. I'm not sure we've ever even broach that headway. No, I think we just sort of threw it out there and started recording. But for those people that don't know all bought s-, it, it's basically a term that describes a order for stocks or bonds of an unusual size, basically often. It's it's small orders of bonds or stocks and up. So it's like if you were to place an order for I don't know nine hundred thirty seven shares of company or something like that something weird. That's not the normal increments. That would be an odd. Lots something irregular. Okay. Yeah. Exactly. And from what I remember we chose the name. Well, we are looking for something. Catchy. And I thought all bought boughts also sort of described the ethos of the podcast in the sense that we cover a lot of slightly random ground. Sometimes right store. That don't typically quite fit perfectly into the overall market themes, because of course, stories that fit nicely into the overall market stories are covered in pretty pretty nice depth, anywhere. I'm thinking, you know, back to our old days of like studying the talking about the cattle market, for example, you know, doesn't quite a fit into typical markets reporting. No, there's not enough cattle market coverage. That's for sure offficial bubble. That's right. But the reason we are actually finally talking about audits themselves is because there's been a little bit of news on this front few weeks ago. Bloomberg actually reported that I think it was J P Morgan and Citi group were shutting down there ought lots trading desks forever. So a big change for the lots market so to speak, right? So capital odd. Lots is staying but lower Keizo odd, lots appear to be on their way out. Or if lease you know, people are still going to be making purchases and random increment. But the idea of a specific desk devoted to them. Those seem to be on the way out, and we wanna know what exactly. And we actually have the perfect guest to explain exactly what is happening. He's a recurring ought lots guest of formerly at Goldman Sachs. Mr Chris white now CEO at Bonn, click enviable markets. Thank you so much for coming on again. It's my pleasure. I want to ask though before we get started by the first three time odd, lots guest. You might be. Yeah. We've had a number of two-time guests. I think you are the first three time. I was told by your producers that there would be something for me. So I'll be waiting after the show. I think it's called the Steve Martin award AGIP especial jacket. Exactly. Well, I'm thrilled to be here. Actually, a true fan of the lots podcast. You got a couple of of my all time favorite podcasts in your catalog. Particularly the one that you did with the Andrew low at the adoptive podcast was awesome. And then just so listening to the origin story of how you came up with the name fascinating for me as a true fan. But I'm happy to do. I think I've been brought in to the designated hitter. When it comes to talking about innovation and credit. You were invited. On today's episode talk about the end of odd lots that we were going to be doing some sort of retrospective. And yet you're actually going to talk about the end of the podcast. Okay. Absolutely. And I'm not embarrassed to say that I received an Email from your producer saying we want you to talk about the end of odd. Lots and I replied, and I said, I'm really sorry that the show is going away. Thanks for having me on the farewell and news like I don't know what you're talking about. But as you could see the title ended up odd lots for this for this one does sound like you guys are closing up shop, and I'm so glad to hear that it's still going on. And I'm also glad to clear up. What I think is a misconception about what's happening without lot. So let me know when you guys want to get into it. Let's do it. Okay. So the the articles or the the recent news items around the closing up of desks J P Morgan Citi are not that they're going to stop trading odd lots anymore. They're actually doing something that Goldman did think probably about two or three years ago, which is really take. The human element out of lots trading in the corporate bond space, and to to further add to your description, Tracy and online, I would say in the corporate bond market not allowed lots of created equal. We would consider there to be a odd. Lots and then micro lots which would be really anything below. Let's call two hundred bonds or two hundred thousand notional so they're sort of an in also sort of changes, depending on what your trading, and and really what you look at is the trade size relative to the outstanding size of the bond is going to determine whether it's an odd. So anything below a million in investment grade is generally considered an odd, blah, but anything below five hundred thousand in high yield is generally considered not line. So before we jump into this ONA, make sure that was level setting. So Chris just on that. No before we talk about what is changing when it comes to trading off, lots who would be trading off lots. Currently like, what type of investors are demanding these sort of smaller or regular size traits. Sure soup. Pure retail investors in the corporate bond space probably account for less than half of a percent of average daily volume. They are not like the equities market. And actually the equities market of old. I would say anything prior to the nineteen sixties was really dominated by the retail investor. That is not the way the bond market works. We're talking about is something I would call institutional odd. Lots and these are really the rebalancing trades would say that occur in the marketplace. Where we have a hundred fifty million dollar portfolio. Somebody tries to sell five hundred thousand dollars of it. And so what do we have to do? We've got a slice away a piece of that port folio and liquidated, and therefore that creates smaller sized trades in the marketplace and just to give you a sense of the magnitude of this activity or. Odd. Lots of we call them in the corporate bond space, you know, typically eighty five to ninety percent of the total trades that occur in the market on an average daily basis are in sizes less than one million, but those trades only account for about fifteen percent of the volume. So a lot of activity, but it's it's not a lot of volume. What is it? So before we could talk about why is changing or why the market structure around the trading of odd. Lots is changing let's about why it exists in the way, it currently is why would a Bank have had to have had a dedicated desk to trade these such that they couldn't just be traded through the normal route Greek questions, so if you look at the actual behavior of electrons trading in the corporate bond space, the dominant protocol is something called an RF cue, which I would best describe your listeners is it's an electronic phone call. And it's you as a. As a buy side asset manager being able to to say to the market him looking for a bid on IBM five-year bonds who's out there. Interested in in giving me a bid, and so making that electron phone call to ten dealers twenty ninety dealers at some at some point in time that became the way to trade a certain type of of or droid execute certain types of trade in the corporate bond market. But if you look a little bit further, the most the most popular way to trade odd, lots in through something called a list form, which would be a bid wanted in competition list or an offer wanted and competition list because be wicks and wicks and the business and what that is. It's a list of individual cases that you wanna trade. And typically these lists the individual line items are pretty small, you know, five bonds here twenty bonds there. Now, these lists used to be processed manually and typically list would take. I would say maybe three to four hours to process from front to back and the the domino electric trading system in credit place. I worked for called market access their their claim to fame. They're they're what they solved was turning that process, the list trading process into something that was leveraging technology, and nobody could deny the efficiency of turning something that took four hours into ten minutes, and we could design the benefits of it. So imagine your asset manager you need to buy or sell a group of bonds, an electronic system is the best way to do it because you can tell a bunch of people. These the bonds interested in trading and the system will then take all of the best bids and offers and present them back to you within a ten minute period. And then you can just say trade them, all and you go about your day. So I think the last time I heard about seventy five percent of the volume on market access was comprised of these lists talked about the decision by J P Morgan and Citi group to dispatch. The actual lots trading desk. What do you think is going on there? And what are they eventually moving towards sue markets are adapting and changing. And so the the environment for trading electrically has had some radical shifts in the corporate bonds space or meaningful shifts permanent ones. And those shifts are now changing the validity of having human beings actually, performed the trading function on the sell side because it's becoming less profitable believe. One of the biggest changes to the biggest change is actually would be the just growth in in in passive funds, so ETF's or huge component of electronic trading. They've been growing I think that the fixed income ETF, a you. I'm just surpassed one trillion recently, I saw so it, you know, it's still not as big as the active Lee managed to funds that are out there, not even close, but it is becoming ciga-. -nificant? And if you think about what is an ETF, it's people trading. These baskets of bonds that are supposed to represent an index. So that's been driving the activity. It's really been pushing it, and then the other thing that's happened is the systems used to be set. So that no a buy side asset manager could send increase out only to the side. So only two dealers. And so those are the people you could make your phone call students Haiti have a bid, but now these systems have started creating what's called all all our few trading. Which is I'm BlackRock, and I could send an inquiry that could show up on pimco desk and the impact of that is obviously greater competition. And so you're going from from in particular with market access in that probably had about eighty dealers on it that could respond to your inquiry. If you're BlackRock to assist in the now has seven hundred people on it that could potentially respond to your inquiry with this does for just a lot trading or really any market is more. Are in the market. It's going to become more competitive and certain trading styles are going to go away. And I think that's where we get to this question as to whether or not human beings on the sell side should be handling a lot trading in a manual fashion."
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