[ B U Y- S I D E
is available. At BlackRock, we will
systematically consume some of
this information and allow tech-
nology to aggregate it, organise it,
and present it in a meaningful and
constructive manner. Five to seven
years ago, the buy-side relied main-
ly on its sell-side partners for this
information, but now they do not
necessarily have the full picture of
the liquidity environment so you
need to supplement the informa-
tion with additional sources.
There is also a shift from pri-
marily principally traded markets
towards more agency markets. This
is driven partly by the sell-side no
longer being able to provide the
instantaneous risk transfer like
they were able to in prior years.
This has led to the development of
agency-style offerings where the
liquidity risk premium has shifted
from the sell-side to the buy-side.
We are always keeping a keen eye
on new disruptive technologies
that are being explored. Current-
ly, there is a lot of discussion on
distributed ledger technologies
or Blockchain. Will DLT provide
more efficient ways for reconciling
I N T E R V I E W
and confirming trades? Will DLT
provide a mechanism for instanta-
neous settlement reducing credit
exposure among participants?
There are several use cases that are
actively being discussed by indus-
try participants.
Will you look to other non-bank and
proprietary trading firms to provide
that liquidity?
SV: From a BlackRock perspective,
we will look at all forms of liquidi-
ty. If the proprietary trading firms
provide liquidity in markets under
certain conditions and it is benefi-
cial to our clients, we will explore
using it, especially in products or
markets where there are liquid-
ity constraints. Products where
clearing houses provide interme-
diation, mitigating credit concerns
and increased price transparency,
are where new market participants
are appearing. These products
|
B L A C K R O C K ]
“Derivatives may
change their form or
structure to adapt to
market structure but
will always be a part
of the investment
instruments used by
managers.”
tend to be more capital efficient,
making them more attractive to
new entrants. There are also more
all-to-all platforms emerging
where all participants access the
same pool of liquidity allowing for
new entrants to join.
What are the main elements that
have impacted pricing of OTC deriv-
atives since the onset of SEFs?
SV: It is difficult to isolate for the
impact SEFs have had on pricing,
as there were many changes also
taking place at the same time that
had an impact. Any instrument
that is mandated to trade with
price discovery in competition
with multiple liquidity providers, is
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