S3, a financial services software company that provides customized platforms to monitor and analyze trade execution for equities and options, introduced a Fixed Income Execution Quality Suite to help bond traders comply with new best-execution standards.
The Suite provides a complete analysis of execution quality for corporate, municipal and TRACE eligible agency bond trades, the company said in a release dated Tuesday. While the use of new technology, including electronic trading systems, continues to increase for fixed income securities, trading still occurs primarily over-the-counter through individual dealers. With this decentralized market, along with the fragmentation in the electronic trading systems, the transparency provided by S3’s Suite is essential for clients to provide and prove best execution, the company said. The platform incorporates data from a variety of sources, including TRACE, EMMA, evaluated prices and market maker quotes.
The Suite is intended to simplify the compliance process and validate the execution data that clients submit to regulators, as the Financial Institutions Regulatory Authority, Municipal Securities Rulemaking Board and other entities increase their oversight of the fixed income markets to bring transparency to these historically opaque securities.
“We foresaw the regulations coming based on client feedback and knew we could provide value with the fixed income product,” said Mark Davies, S3’s chief executive officer in an exclusive phone interview with The Bond Buyer. “The whole process started about a year and a half ago. With the regulation coming in, the idea of best execution and how fixed income provides a different choice from equities and options, it was like a perfect storm from all the things connecting together.”
One of the largest online retail brokerages has deployed the Suite as its first customer, and is using its proprietary technology and advanced methodologies for both internal and external reporting and analysis. Clients utilizing the Suite have the ability to examine historical prices and orders, as well as to compare their fixed income executions with other trades in the market in order to determine those factors impacting best execution. This depth of analysis is critically important, as there has historically been little execution data available for fixed income trades and provides firms with the information necessary to determine execution quality for these volatile securities that often have wide spreads.
“We are proud to now offer a groundbreaking level of execution quality transparency for fixed income securities trading, as we have provided for the equities and options markets for years,” said Davies in the press release. “The Fixed Income Execution Quality Suite enables clients to distinguish the execution quality of their orders from overall market conditions via a deep level of analytical granularity.”
Davies also noted that the platform allows for the analysis of trade prices against a wide and detailed set of metrics, simplifying the search for best execution and enabling firms to easily manage compliance initiatives.
“S3 now offers a more in-depth view of the corporate, municipal and TRACE eligible agency bond markets than what has been previously available to the marketplace, providing our customers with the requisite information for fixed income execution quality and ensuring a fairer trading environment,” he said.
John Standerfer, S3’s chief technology officer said that by using multiple data services it enables the company to provide their clients with the most up to date information.
“We are using EMMA, TRACE and Thomson Reuters evaluated pricing and even dealer quotes. We give our clients end of day price for every single bond as well as intra data – if news breaks and it concerns that particular bond, we will update the price before the end of the day," Standerfer said.
Firms are now required to provide data proving that their fixed income trades benefit customer order flow and meet best execution obligations. This has become even more crucial in recent years given the increase in the number of available venues for fixed income trading, including automated trading systems and other electronic platforms, which has added new layers of complexity to these markets. The Suite allows S3’s clients to compile a robust audit trail to prove that their orders are executed to the greatest benefit of their customers, ensuring full compliance with execution quality regulations, according to the release.
“Providing detailed data analytics for fixed income executions is crucial to enhance transparency in these markets, especially in light of greater regulatory oversight. The Suite allows customers to navigate increasingly complex regulations, ultimately improving trust in the fixed income space,” Davies said.
Davies said that S3 developed the platform based directly on client feedback, supporting their compliance needs and simplifying the pursuit of best execution for fixed income trades.
“The market for these securities has evolved significantly in recent years as a result of the increasing use of electronic trading platforms, and the Fixed Income Execution Quality Suite allows customers to more effectively and fairly trade these securities as the market continues to change. We look forward to continually improving the software and to incorporating new enhancements to the Suite over the coming months,” Davies said.
Davies said that S3 is a custom solution provider, looking for clients who want to build out the best execution analytics tools for their fixed income needs.
“Just to clarify what we mean by ‘custom solutions’ - S3’s tools are implemented and tailored to the exact specifications of new clients from the outset of engagement, providing customers with the exact reporting capabilities that best suit their businesses,” he said. “These fully customizable market data solutions enhance best execution analysis uniquely for each client, and S3 works directly with customers to optimize the functionality of its software.”
