Google, robots.txt and the “Search for Liquidity”: Fixed Income edition

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This is a companion piece to the original post "Google, robots.txt and the “Search for Liquidity” from June 2014. If you have some time, read that first. If you have more time, also read this "Bootstrapping, FIIDL and the mesh exchange"

Then, have a read of "CORPORATE BOND MARKET STRUCTURE:  THE TIME FOR REFORM IS NOW" from BlackRock.
The conclusion from BlackRock is summarised by them as:
  • More “all to all” trading venues – not just “dealer-to-customer” or “dealer-to-dealer”
  • Adoption of multiple electronic trading (e-trading) protocols – not just request for quote (RFQ) or central limit order book (CLOB)
  • Standardization of selected features of newly-issued corporate bonds
  • Behavioral changes by market participants recognizing the fundamentally changed landscape
The conclusion from my earlier post was:
"Extend that paradigm – a buy-side creates a secured website that allows spiders to search for liquidity. That liquidity may be strong or weak, in other words, an order or an indication of interest. Many different search engines will scan websites and a robots.txt file can be deployed to request that the website is in part or entirety excluded from the search engine.
So, expand the analogy – rather than the current exchange based trading paradigm, imagine a world where Google decided to get involved.  Replace the hub-and-spoke paradigm of information distribution with a peer-to-peer model with multiple agents conforming to a standard for negotiation for trading (see earlier post on FIIDL).  Robots.txt then becomes a counterparty restriction tool.  Add in a CCP with full buy-side participation and the world of financial services looks very different.

 A few stages of development for this new paradigm could be:
  1. Sell-sides commence to use the spider model to search for liquidity
  2. Tech savvy buy-sides and hedge funds use the spider model and FIIDL to scour multiple sell-sides for liquidity
  3. This technology breaks out to the sophisticated private investor and then to universal adoption. "

 All well and good.  So what's the conclusion?

 I suggest that the piece from BlackRock is valid and has obvious merit.  I further suggest that one of the multiple protocols should be FIIDL and the Mesh Exchange.

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