In its first foray into fixed income, trade-analysis software vendor S3 has launched its Fixed Income Execution Quality Suite.

“We started by covering execution quality in the options and equities space,” said Mark Davies, chief executive officer of S3. “The buy side finds value in understanding their execution quality and the same is true in fixed income.”

Users of the software-as-a-service (SaaS) offering send encrypted batch files of their fixed-income trades to S3.

In turn, the vendor compares the client’s trade-execution data to quotes culled from approximately 75 broker-dealers and culled from one unnamed fixed-income alternative trading system as well as evaluated prices provided by Thomson Reuters. S3 also runs each trade record through a client-provided rule set flagging any trade that violates a rule.

“What the suite does is create a band of reasonable prices that can occur,” said John Standerfer, CTO of S3.”The more data sources we have, the more confident we can be in flagging exceptions.”

For trades in the more illiquid issues, such a bond that has not traded in the last 30 days, S3 relies on Thomson Reuters’ evaluated prices.

“Thomson Reuters has a team that is constantly coming up with these evaluated prices based on interest rates, comparables in the yield curve, duration and all the different variables,” he added.

S3 is in talks with exchanges, other ATS operators, and additional broker-dealers to expand its data library. However, users need not worry about additional licensing for the data used in the service, according to Davies. “This is all covered through our licenses with the various data vendors,” he said.

The suite also includes an audit-trail functionality that clients can use to enter how and why the decision was made to enter into the trade, and who else approved the transaction. “If regulators ask questions about flagged trades, clients can show them that 99% of their trades passed the execution rules,” Standerfer said. “With the 1% that failed, clients can point to the audit trail for why the trade failed, what investigation took place, and what, if anything, the firm did about the failed trade.”

Since S3 launched the service, most of client-submitted trades were volatile-trading issues rather than illiquid issues. “We’ve seen a lot of volume in the energy bonds,” said Standerfer. “A lot of them have been downgraded and trade far far away from their par value.”

Meanwhile, the vendor plans to develop a pre-trade version of its fixed-income offering. “It’s at the whiteboard/investigation stage with clients and the data vendors,” he said.