Overbond has introduced a margin optimization model for trading and has incorporated voice data into its data as it seeks to provide more interoperable AI-based data and trade analysis and automation solutions for fixed income securities.

In August, Overbond released an AI-powered margin optimization add-on that allows traders to optimize their success rate while tripling the number of quote requests they can respond to and increasing their profitability.

Vuk Magdelinic, Managing Director of Overbond, told Markets Media that the first layer is for Overbond to use its pricing risk and liquidity rating metrics to separate market situations and tenders to identify which transactions to automate versus which cannot or should not.

The second layer is to use the Margin Optimization AI model which uses aggregated data from historical executed transactions and tenders which are rejected, hedged and traded.

Magdelinic said, “There is a measure of the distance between the winning trades and the second and this is what the model specifically tries to minimize.”

The model contains data from thousands of auctions so that the algorithm can discover a price good enough to win without losing too much skin in the game.

“You don’t want to win the trade with a negative margin or a very low P&L,” added Magdelinic. “I often say that if I wanted to sell my house for $ 1 today, I probably could.”

He gave the example of an office that used Overbond analytics and the Margin Add-on to increase profitability. The desk has two traders who receive around 500 RFQs each day, and they responded to around 100 with a success rate of around 10%.

“Using the Overbond automation tools, they doubled their responses between 200 and 250,” added Magdelinic. “The office’s strategy was to keep the same 10% coverage ratio, but the P&L grew by about $ 3.5 million per year.

Competitive pressure from operating credit trading desks means response times are getting shorter.

“Traders are asked to respond within 30 seconds or less to be competitive and in 80% of cases there is no observable price in the market,” Magdelinic said. “A service like optimizing margins can immediately help grow the income statement to sustain the business. “

Improve data

Magdelinic described the quest for more data as the quest for gold.

Overbond launched COBI-Pricing LIVE, a real-time AI bond pricing product in September of last year.

IMMEDIATE RELEASE: Montreal, Toronto and New York – September 17, 2020 – Overbond Ltd., a provider of fixed income analysis solutions, today announced the launch of COBI-Pricing LIVE, the powerful new product from Company’s real-time AI bond pricing. Read more: https://t.co/VeIvOYFkTb

– Overbond (@overbond) September 17, 2020

COBI-Pricing LIVE has the ability to process real-time historical price data on the coverage of over 30,000 titles with a refresh rate of less than three seconds, which the company says is the fastest in the industry. .

The Overbond platform first collects raw live trading data and fundamental data from a range of providers, then gathers company-level fundamental data, broker quotes, executed trade records. by internal customers and investor preferences through feedback.

“COBI-Pricing LIVE’s refresh rate of less than three seconds allows sell-side trading desks to fully automate 30% of their tenders and execute an additional 20% with merchant supervision,” added Magdelinic .

In August, Overbond partnered with IPC to integrate the company’s point-of-sale voice transaction data into Overbond’s AI algorithms.

Overbond and IPC team up to introduce technology that translates voice transaction data into artificial intelligence algorithms. Learn more here: https://t.co/zjsP1YKN3L pic.twitter.com/GxSPE7ieUN

– IPC Systems (@IPC_Systems_Inc) August 11, 2021

Bob Santella, Managing Director of IPC, said in a statement: “Our partnership with Overbond continues the digital transformation of fixed income trading by fully harnessing the power of voice data.

Even in in markets denominated in US dollars or euros, there are days when at least half of the total volumes are processed by voice. If this data is not included in the algorithm, a bond that has been negotiated could be considered highly illiquid.

Magdelinic continued that the IPC partnership is innovative as it integrates voice trading into the automated Overbond workflow, for example, by automatically tagging the exact CUSIP number that identifies the bond being traded.

“We have a number of integrations and tests that are showing very good results in terms of increased coverage and accuracy of our model through the inclusion of voice,” he said.

Overbond also aggregates data across all of the sites the trading desks are connected to, so traders don’t have to view it separately.

Overbond’s Tender Aggregation Dashboard displays and controls incoming tenders while simultaneously delivering aggregate cash and bond prices with an update in under 3 seconds. Traders no longer need to switch between screens of locations to respond to tenders. pic.twitter.com/DCOAbKHH4y

– Overbond (@overbond) July 12, 2021

In January of this year, Overbond integrated data from Euroclear LiquidityDrive which analyzes all fixed income instruments settled within Euroclear, covering over 460,000 global corporate and government bonds. The service combines settlement data from executed transactions with custody activity and does not know whether the instrument is traded electronically or by voice.

“Using Euroclear LiquidityDrive, Overbond can access OTC transaction volume information that is not found in any other site-specific electronic data feed,” added Magdelinic.

Integrating OTC transaction volumes into AI models improves bond liquidity rating accuracy and better executable pricing.

Growth plans

Magdelinic added that Overbond is looking to provide clients with a more unbundled fulfillment service that can be interoperable with their existing technology on the desktop.

“Tier 1 or Tier 2 financial institutions are locked into existing systems or infrastructure, so we’ve made sure that our solutions can be integrated with existing desktop technology through the API,” he added.

As a result, Overbond can target multiple segments as customers of different sizes, book compositions attempt to carve out a niche in capital market trading.

A recent Barclays Global Fixed Income Markets Structure Survey found that over 60% of institutional fixed income investors do not have an execution order management system and less than half plan to have one in place. by the end of this year.

The survey, which polled central banks, asset managers, insurance companies and hedge funds, also found that less than 25% of respondent flows are executed using automation.

Magdelinic said: “The Barclays investigation shows there is still a long way to go.”