Taking too long? Close loading screen.

Our Work


Client Description
Broker/dealer with fixed income sales and trading operations
Background
Prices for certificates-of-deposit in the secondary market are impacted by changes in interest rates, instrument duration, issuer credit quality, macroeconomic backdrop, and steadily fluctuating technical supply/demand factors. In buying and selling these instruments, profitability is measured in fractions of a percent (basis points); a broker-dealer’s profit can be wiped out by small pricing errors. “Good” prices must reflect current and implied levels of interest rates and the market’s perception of each issuing bank’s credit quality, including many smaller banks whose names are not widely recognized.These instruments are often traded via request-for-quote (RFQ) lists on alternative trading system (ATS) platforms with traders receiving one to several thousand items to bid on each day. The sheer volume of requests presents workflow problems to trading desks as it is difficult or impossible to manually price and respond to all requests. Automation has become a necessity to remain competitive in this market.

Approach
Mazzaroth began developing a reliable, systematic approach to real-time pricing secondary market (brokered) CDs issued by hundreds of banks of varying credit quality, with time-to-maturities ranging from a few days to 10+ years, to allow our client to quickly and confidently trade across thousands of instruments. In addition to pricing accuracy, our client wanted an end-to-end solution that could be seamlessly integrated into their current trading workflow. We obtained a deep trading history from our client and augmented this with additional financial time series data and our client’s proprietary history of bid submissions for trades won and lost. We iterated through several model types including generalized linear and tree-based methods, eventually employing a multi-model approach which took into account trading pattern differences that varied across different maturity curve segments.We then integrated this system to all relevant ATS/ECN systems via our client’s pre-existing third party aggregation platform via FIX protocol. The system also has Bloomberg Terminal Connect integration and can be launched from within Bloomberg Launchpad directly on the traders’ desktops or via standard browser-based web application.
Outcome
RFQ response rate increased by 102%