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[ A D V E R T O R I A L ] Determining execution quality for corporate bonds Constantinos Antoniades, global head of fixed income at Liquidnet, discusses the firm’s place in the current market structure and the next frontiers of innovation in corporate bonds. I n the new landscape that has emerged as a result of the in- dustry drive to make the corpo- rate bond market more efficient, Liquidnet has developed a unique value proposition for its members. First, it has become one of the largest pools of buy-side liquidity in the world in less than four years, with more than $20 billion in average daily liquidity 1 . Second, it has achieved critical mass with 925 users from more than 360 firms since launch. Third, Liquidnet has helped address the larger size liquidity challenges by aggregating significant buy-side block liquidity, with an average trade size of $5.4 million in June. Last but not least, Liquidnet has worked to help its members save transaction costs, directly impacting performance; an independent study conducted by IHS Markit showed that executing a trade on Liquidnet with another buy-side firm saves on average 87% of transaction costs 2 , when com- 14 // TheTrade // Autumn 2018 pared to the best price available in the IHS Markit dealer price feed. How is MiFID II changing the corpo- rate bond landscape? Constantinos Antoniades: MiFID II places significant emphasis on best execution policy and process, as well as raising the relevant obligations on asset managers. Post MiFID II, asset managers need to demonstrate a process by which they can deliver the best out- come to their investors, with best “TCA is not meant to replace best execution, but it helps asset managers craft a better best execution policy.” execution being a dynamic policy subject to on-going validation and periodic adjustments. When craft- ing and adjusting best execution policies asset managers must take into account, among other things, observed execution quality, access to electronic liquidity, changing market conditions, and changes in their business mix over time. The combination of policy and process does not necessarily mean achieving the best price for every single trade, but it should consti- tute a framework by which the best outcome is consistently delivered to investors over time. This becomes more interesting once you start seeing the new best execution framework through the prism of alpha generation, as opposed to merely a box-ticking exercise. We have already seen a number of asset managers that have crafted best execution policies that help them deliver additional