[ C O V E R
S T O R Y
|
C A R L
J A M E S ]
“T
he bond markets are over 300 years
old and, whatever it happens to
look like, people have always been
issuing debt throughout that time.
When we look at the bond market
there’s a level of sophistication
and – no pun intended – maturity
coming to the market.”
Carl James, global head of fixed
income trading at Pictet Asset Management, the buy-side arm of Swiss bank
Pictet Group, believes that while fixed income trading may have been going
for centuries, there has always been an element of randomness to the pro-
cess. Exchange floor price quotes, over-confidence of market knowledge and
minds still stuck in the 1980’s are all challenges to be overcome if the fixed
income world is to move forward, although James believes the dial is now
rapidly moving to a quant-driven
approach.
Having joined the ¤152 billion
asset manager just over three years
ago to run its fixed income trading
desks worldwide, James has set
about utilising his 30-odd years of
global capital markets experience to
help guide the Geneva-based firm
into the future. The real challenge,
he says, will be changing minds
about where fixed income desks are
heading.
“There is a new paradigm and
that is a hard wheel to turn, either
internally or externally, so changes
can be difficult,” he explains. “There
are a number of portfolio managers
that absolutely embrace the change
and we’re doing some nice work
together looking at the timing of
trades and order generation timing,
for example. This is the part I think
is really interesting, because you
start to understand the randomness
and find better patterns.”
James says that the reception
to such a new approach has been
mixed. Some “love this quantitative
34 // TheTrade // Spring 2019
data” because it allows
them to improve their
own working process,
while others have
pushed back against the
change, arguing that
it doesn’t provide the
whole story. “They’re
right, it doesn’t give the
whole story, but it’s still
evidence,” he says, pointing to the equivalent journey
the equities market has been through.
The other key challenge for the fixed income market
according to James is that of industry standardisation,
adopting the Tuckman model of group development
(forming–storming–norming–performing) to illustrate
the industry’s progress.
“That’s classic trajectory, but if you look at that in
the fixed income world on a broad level, we are in the
storming process,” he says. “MiFID II was the catalyst –
the forming stage – and now we are storming. There are
150 trading platforms out there and 150 of them aren’t
all going to survive.
“To be clear, that’s not standardisation of the in-
vestment process. As a good example, ISDA was put
together because bilateral was a real pain to negotiate
contracts very time and it standardised the process.
Clearing is the next step of standardisation there.”
Reg and tech
While he may describe MiFID II as the catalyst for
pushing the fixed income markets into the next phase of
its evolution, James acknowledges that there was also a
technology groundswell leading up to the implementa-
tion of the new regime, which has forced many industry
participants to examine both their in-house infrastruc-
ture and their trading processes.
Buy-side trading desks that had previously been run-
ning on decade’s old technology had to make a change
before the new rules came in and that meant every-