James Morris, Senior Vice President at Investortools, featured in The Bond Buyer Podcast

Automation and electronic trading are dominant trends in the fixed-income industry and the broader financial landscape. While sometimes seen as buzzwords, they represent transformative concepts that Investortools is committed to integrating for streamlined user workflows. In a conversation with Lynn Funk, Executive Editor at The Bond Buyer, James Morris, Senior Vice President at Investortools, explores how these themes are fundamentally reshaping the municipal bond market and how Investortools is playing a key role in driving this evolution.

 

Demand for Automated & Efficient Processes

Managers face significant pressure to scale operations and do more with fewer resources. While automation tools are crucial in meeting this demand, implementing change poses a significant challenge for traders. Traders operate in a fast-paced environment with no slack time in their day – they are busy 100% of the time. Asking them to adopt new processes, even if their current ones are not optimal, can be daunting due to the associated risks and challenges.

At Investortools, we successfully guide clients through the transition to automation. Despite the challenges associated with implementing new processes, traders benefit significantly from reduced inefficiencies and increased precision in their data driven decision making. By reducing the manual aspects of frequently carried out processes, users are empowered to scale operations and manage increased workloads more effectively.

This impact is particularly evident in the separately managed accounts (SMAs) space. Automation enables asset managers to elevate the ratio of assets under management (AUM) to employees, facilitating a reduction in account minimums from millions to the quarter-million range. This efficiency, driven by technology, enables firms to expand their account base while maintaining the same front-office staff. This efficiency is seen in portfolio construction times within our software, where we observe rapid transitions from cash to fully invested portfolios.

 

Electronic Trading & Connectivity

At the core of our software suite is Perform, originally developed as a portfolio management system and now evolved into a full-service POEM (Portfolio, Order, and Execution Management) platform. This expansion has enabled Perform to deliver a straight-through-processing experience that is unparalleled in the industry.

Within Perform, the Investortools Dealer Network (IDN) plays a central role in facilitating electronic trading. By connecting buy-side and sell-side participants, the IDN provides a direct, live stream of liquidity from numerous dealers and Alternative Trading Systems (ATSs) such as ICE TMC, Market Axess, Tradeweb, and ICE BondPoint. This aggregated inventory provides users access to a wide range of bonds, enabling them to build optimal portfolios. Electronic trading and the breadth of opportunities it provides expands traders’ reach, allowing them to efficiently explore a significantly larger number of securities than they could manually.

The IDN also supports both direct, or disclosed bilateral trading connections which allow dealers and their buy-side counterparties to communicate directly. This direct communication eliminates intermediaries, allowing for efficient negotiation and execution of trades.

Perform’s automated capabilities include:

• • Evaluating potential sale candidates to identify the best bonds at the best prices.

• • Using the RFQ workflow to create a single sale ticket to multiple dealers, ATSs, or Bloomberg simultaneously, streamlining the selling process.

• • Enabling bulk bidding and trade executions to optimize portfolio construction, with the option to automate trades using Auto-Ex based on user-defined parameters.

• • Automatically allocating individual bonds or groups of bonds according to user-defined rules.

• • Providing access to multiple sources of intra-day pricing and pre-trade analytics, enhancing decision-making capabilities.

 

Price Transparency

Investortools significantly enhances price transparency by facilitating connectivity and communication of prices from counterparties. Users are able to view where others are willing to buy or sell bonds before initiating a trade. The aggregation of these prices reduces the need to access multiple platforms, simplifying data collection. Automation has played a key role in increasing the frequency of pricing and the repricing of bonds, enabling rapid dissemination of this information to buy-side firms or platforms like Investortools.

For buy-side clients, this integration of live market data with asset manager objectives, portfolio constraints, internal credit analysis, and proprietary data streamlines decision-making processes. The adoption of algorithmic pricing has further allowed dealers to price more bonds, respond to more requests, and enhance both end-of-day and intraday pricing.

 

Conclusion

The municipal bond market has undergone a remarkable evolution in electronic trading and automation. While historically perceived as lagging behind corporate bonds in this regard, significant advancements have propelled the muni market to catch up, and in certain areas, even leap ahead. Embracing automation and e-trading is key to success in today’s dynamic fixed-income landscape. By leveraging these technologies, market participants can streamline workflows, improve efficiency, and access a broader range of investment opportunities in a rapidly evolving market landscape. Investortools is committed to exploring innovative strategies that drive success in the municipal bond market, empowering our clients to achieve their goals.