The biggest change in derivatives trading over the past half-decade has been the move from the phone to the screen. The migration is happening slowly and with fits and starts, but the long-term trend is inexorable, and savvy traders are going with it rather than fighting it.
“We have embraced the new regulatory mandates,” said Sam Priyadarshi, head of fixed income derivatives at The Vanguard Group. “We have moved from voice-brokered, high-touch execution to low-touch electronic execution for all listed and OTC products. We use trading algorithms and self-execute swaps and futures, and we trade Treasuries electronically on dealer-to-client platforms.”
Priyadarshi’s four-person (including himself) group is responsible for derivatives trading and portfolio risk management for all Vanguard actively managed fixed income funds, which covers more than $100 billion. Vanguard is the 2016 Markets Choice Award winner for Best Buy-Side Derivatives Trading Desk.
“We trade over $500 billion in cash and derivatives per year, roughly 30,000 tickets, in a timely, efficient and error-free manner,” Priyadarshi said. “We trade exchange-traded derivatives on North American as well as European exchanges, for example Liffe and Eurex. We also trade swaps on and off SEFs, and we trade OTC swaptions and U.S. Treasury bonds.”
Priyadashi said his group built a portfolio risk-management tool to help manage duration and currency exposure; created tools to identify and execute Treasuries relative value, futures basis and relative value in swap spreads; reduced client transaction costs via using futures algorithms and controlling trade information; and kept senior Vanguard management updated via reports on market sentiment, risk appetite, market indicators, and economic data.
More broadly, “We have been part of industry discussions and we have engaged with regulators on the implementation of the Dodd-Frank Act,” Priyadarshi said. “I have advocated on behalf of mutual fund investors and for stronger and more stable markets for all participants, be it dealers, platform providers, vendors, data providers, data repositories, SEFs, exchanges and so on.”
“We are also working with industry groups on responding back to CFTC on Regulation Automated Trading and with the SEC on liquidity as well as derivatives use proposals,” he continued. “We’ve worked with broker-dealers, data and technology vendors, exchanges, trading platforms, other asset managers, to discuss solutions to challenges from different parts of the Dodd-Frank Act: central clearing, SEF trading, systematic risk for clearing houses, changes to trading workflows and trading protocols.”
Priyadarshi is also involved in talent development at Vanguard, and mentoring both new mutual fund traders and recent graduates who aspire to work in this or similar areas.