Case Studies
BIG Goals lead to BIG Success
A Case Study of the TWS LiquidityBridge Solution for Brownstone Investment Group
In today’s competitive Fixed Income marketplace, liquidity and volume are key components for a successful dealer operation, and electronic trading has become a mainstream method for achieving both. Dealers who want to achieve the maximum potential efficiencies of electronic trading need vendors who can provide market-tested solutions that adapt to any Fixed Income sector. This case study describes the story of a specialized fixed income dealer, Brownstone Investment Group, who found a specialized vendor, Trade West Systems (TWS), to provide a STP connection to the BondDesk platform and help them grow their electronic trading efforts.
Boldly moving High Yield Inventory to Electronic Trading
Brownstone Investment Group LLC, based in midtown Manhattan, actively trades High Yield, Distressed, Convertible and Crossover Corporate bonds with hundreds of registered broker dealers around the United States. Because of its exclusive concentration on Fixed Income products, the firm is able to provide a depth of focus and commitment of resources that is unique in the industry.
In 2007, the firm decided to adjust its business model and increase its trading volume by providing a presence on as many electronic trading venues as possible, including BondDesk, a platform that “suits our market niche and allows us to access a broader customer base,” notes Michelle Halla, a director at Brownstone.
The firm could have elected to begin cautiously on BondDesk with manual entry of prices for a select group of securities, but this approach would not have maximized the potential efficiencies of the platform. Instead, Brownstone selected the Bloomberg Trade Order Management System (TOMS) to serve as the source and maintenance system for their bond positions and prices, and began a search for an expert who could connect TOMS to BondDesk, because there is no direct connection between the two systems.
Dealer in Search of Reliable Vendor
Brownstone sought a solution that could deliver bond positions and prices from TOMS to BondDesk in real-time and capture executed trades for real-time delivery back to TOMS. The ideal connectivity solution had to be reliable, but not overly expensive. Given that Brownstone had never worked with BondDesk before, it needed to find a company that was an expert in both systems and one that it could depend on to provide a quick turnaround.
Just as there are few dealers with extensive depth in High Yield, there are few vendors who can provide the type of connectivity that Brownstone was looking for. Some general purpose vendors have tried to address this problem, but do not have the specific experience that would have given Brownstone the confidence to contract them for support of its new electronic trading distribution effort. Brownstone did find and evaluate two experienced providers in this specific area, one of which was TWS.
TWS had experience with TOMS and with BondDesk and was able to quickly assess the specific needs of Brownstone and deliver a proposal for implementation of its LiquidityBridge Connectivity Suite. The proposal outlined an aggressive time to market commitment that supported all required connection points, as illustrated below:
TWS also offered an attractive price which was one of the deciding factors in comparison to the other vendor, explained Halla. Other advantages noted by Halla included the flexibility of the LiquidityBridge solution and the knowledge of the TWS staff.
High Yield Roll Out
The LiquidityBridge Connectivity Suite provides automated price distribution and post trade connections for electronic trading in order to help financial institutions increase efficiencies for the complete trade cycle. The suite consists of a robust and high speed communications engine, a user interface for operations staff, and a library of more than 30 connectors that link position keeping systems and trading platforms.
For a client implementation, TWS assigns an account manager who leads a kick-off meeting with the client to flesh out the requirements and to introduce the client to features that address their specific needs. Standard features used by most clients include the LiquidityBridge monitor that allows clients to ensure trades have properly flowed through to TOMS and Email Alerts that notify clients of connectivity status and problems with inventory or trades.
LiquidityBridge Monitor
For Brownstone’s situation, the TWS Client Integrations Manager, Aaron Cavender, identified a number of key features for the transport of High Yield inventory and prices to BondDesk. Although BondDesk already had High Yield market makers on its platform, Cavender recognized that Brownstone planned to supply new sets of bonds that required special handling, and introduced Brownstone to the Offer Reject Alerts, the Firm/Subject Offer Status, and other features of LiquidityBridge.
The Offer Reject Alerts feature notifies a market-maker of any bond in its inventory that is not set up in the trading platform and removes the bond from the queue, allowing others to pass through without delay. The Firm/Subject Offer Status provides traders with the ability to modify a bond’s price status from a firm offer to subject (to change) – an important feature in the High Yield market. During this process, Halla developed an appreciation for the quality attributes of a vendor that extends beyond the capabilities of its software, pointing out “It’s been extremely beneficial having a knowledgeable programmer who is familiar with the bond market and how it trades.”
The BondDesk project has been a big success for Brownstone. TWS fulfilled its commitment to guide Brownstone through infrastructure validation, installation, position validation, customization, integration testing with trades, user acceptance testing, and roll out within a four week period and had them ready for production in the second week of April, 2007. Since implementation, Brownstone has met its objectives for increasing its trade volume and liquidity by tapping into an account base on BondDesk for which they would never have had exposure, and as a result have increased their trading volume. The flawless real-time performance in price delivery and trade capture through LiquidityBridge ensures the accuracy and timeliness of the inventory on BondDesk.
In the first few months since roll out, Brownstone expanded its coverage with a 33% increase in bond positions distributed to BondDesk. With the help of TWS, Brownstone is able to safely test future enhancements and changes in a QA environment so that it can grow its electronic trading on BondDesk with confidence. Halla appreciated the quick time to market, the performance and the customer responsiveness.
Final thoughts
Brownstone selected TWS and its LiquidityBridge Connectivity Suite because it needed to work with a group that had the experience to anticipate their needs as they broke new ground for their firm and for the trading platform. They found TWS to be more capable than the general purpose vendors and more attractively priced with a better delivery commitment compared to alternatives. TWS fulfilled its commitment and has been responsive to pre-rollout and post-rollout requests for advice and modifications.
Clients of TWS connect to twenty different trading platforms and systems, including all of the major fixed income trading platforms in the U.S. and Canada. Many clients begin by using LiquidityBridge to connect just one system to another, as in the Brownstone case. Once they have a comfort level and experience the operational efficiencies of this solution, they are eager to find additional connection points. Market-makers who participate in electronic trading platforms or are considering participating will benefit by evaluating the ways in which TWS can help to make these projects successful and provide a highly efficient transport and connectivity solution.
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