GLMX: meeting the unique needs of money markets
14 Septmber 2021
GLMX chief executive Glenn Havlicek explains that when new technology provides a better, cost-effective way to execute critical activities, its adoption is assured
Image: Glenn Havlicek
There is a locally famous 鈥淧erson on the Street鈥� interview from Park Avenue in New York City dating from the late 1980s. In the interview, a TV reporter asks a well-dressed Wall Streeter for his opinion on then-new cell phone technology. The man responds by saying that cell phones may have a place but 鈥測ou鈥檒l never see anybody walking down Park Avenue talking on one of them鈥�.
The first moral of the story is that public acceptance of new technologies almost always takes a while.
The second is that, when a new technology genuinely proves to be a better way, it will be adopted 鈥� naysayers and all.
The trick to building successful new technology is first to identify the underlying pain point for prospective clients. A current case study in such a situation is the Money Market Mutual Fund (MMF) business, where two pain points, which almost certainly would be near the top of the current list, are return and liquidity.
Return is the less controllable of the two, driven by macroeconomic and political reality. Quantitative easing (QE), the ample reserves regime and modern monetary theory (MMT), which are common in today鈥檚 market environment, would have been considered economic heresy until the start of the financial crisis.
Demand for cash from traditional borrowers is no match for the sheer magnitude of excess reserves in the money markets of 2021. While the Federal Reserve鈥檚 recent rate tweak of their reverse repo programme reflects at least an acknowledgment of the criticality of the MMF business to the smooth functioning of numerous other US and global financial markets, it does little to assuage the market鈥檚 current thirst for return. Unfortunately, as a result of the Fed鈥檚 massive influence on short term markets, little can be done to change the course of those returns without the Fed taking the lead.
While liquidity is theoretically 鈥渕erely a matter of price鈥�, it is continually buffeted by the winds of regulation, imperfect price transmission and liquidity pool opacity.
The combination of paltry returns, aversion to negative rates and stringent capital and liquidity requirements renders the historically fluid money market landscape economically infertile.
With the nature and source of the pain identified, the question is how a critically, systemically important business like MMFs can improve the efficiency of their market activities in order to survive, as intact as possible, the ongoing yield drought of the last several years.
Ground-up repo
When we started GLMX in Palo Alto, California in 2010, we envisioned a single, comprehensive, purpose-built digital interface, providing easy and efficient access to liquidity across the range of global money market instruments, with straight-through processing to a wide array of mid and back-office processing systems and to a variety of clearing venues. Our client 鈥榯emplate鈥� was Money Market Mutual Funds.
In the years intervening 2010 and 2021, GLMX has built its market-leading repo technology on precisely that foundation. We quickly (but sometimes painfully) realised that the simple concept of repo belies the complexity of the underlying transaction and that the product demanded a ground-up repo system. We initially built the system in 2012 and completed a comprehensive re-build in 2018 鈥� specifically to that end.
All along, we anticipated extending our purpose-built approach to the larger money market instrument set. Our ongoing, underlying mantra is that the 鈥渇ront end鈥� of fixed income markets is a unique and distinct ecosystem and that technology built for other securities markets fails to capture the integrated decision making 鈥� across instruments 鈥� in use by participants in the MMF space.
GLMX today reflects that same ambition from 2010 鈥� to provide market-leading digital capabilities which closely align with the unique needs of the money markets. When expansion beyond repo is complete, GLMX technology will provide unparalleled, real-time access to liquidity pools across instruments and geographies, will greatly simplify the search for yield across instruments, will provide relative-value decision support within customised credit, concentration, sector and ratings parameters, and will introduce seamlessness in both trading and processing. These qualities will provide a super-efficient marketplace which will help the MMF complex compete in even the most challenging macroeconomic circumstances.
To bring full circle the idea above 鈥� that when technology genuinely provides a better, cost-effective way to execute critical activities, its adoption is assured 鈥� several MMF complexes already are working with GLMX to bring to life the enormous value of a comprehensive money market ecosystem. And, as always, we at GLMX welcome the opportunity to serve our clients more broadly and to mutual benefit in coming months and years.
The first moral of the story is that public acceptance of new technologies almost always takes a while.
The second is that, when a new technology genuinely proves to be a better way, it will be adopted 鈥� naysayers and all.
The trick to building successful new technology is first to identify the underlying pain point for prospective clients. A current case study in such a situation is the Money Market Mutual Fund (MMF) business, where two pain points, which almost certainly would be near the top of the current list, are return and liquidity.
Return is the less controllable of the two, driven by macroeconomic and political reality. Quantitative easing (QE), the ample reserves regime and modern monetary theory (MMT), which are common in today鈥檚 market environment, would have been considered economic heresy until the start of the financial crisis.
Demand for cash from traditional borrowers is no match for the sheer magnitude of excess reserves in the money markets of 2021. While the Federal Reserve鈥檚 recent rate tweak of their reverse repo programme reflects at least an acknowledgment of the criticality of the MMF business to the smooth functioning of numerous other US and global financial markets, it does little to assuage the market鈥檚 current thirst for return. Unfortunately, as a result of the Fed鈥檚 massive influence on short term markets, little can be done to change the course of those returns without the Fed taking the lead.
While liquidity is theoretically 鈥渕erely a matter of price鈥�, it is continually buffeted by the winds of regulation, imperfect price transmission and liquidity pool opacity.
The combination of paltry returns, aversion to negative rates and stringent capital and liquidity requirements renders the historically fluid money market landscape economically infertile.
With the nature and source of the pain identified, the question is how a critically, systemically important business like MMFs can improve the efficiency of their market activities in order to survive, as intact as possible, the ongoing yield drought of the last several years.
Ground-up repo
When we started GLMX in Palo Alto, California in 2010, we envisioned a single, comprehensive, purpose-built digital interface, providing easy and efficient access to liquidity across the range of global money market instruments, with straight-through processing to a wide array of mid and back-office processing systems and to a variety of clearing venues. Our client 鈥榯emplate鈥� was Money Market Mutual Funds.
In the years intervening 2010 and 2021, GLMX has built its market-leading repo technology on precisely that foundation. We quickly (but sometimes painfully) realised that the simple concept of repo belies the complexity of the underlying transaction and that the product demanded a ground-up repo system. We initially built the system in 2012 and completed a comprehensive re-build in 2018 鈥� specifically to that end.
All along, we anticipated extending our purpose-built approach to the larger money market instrument set. Our ongoing, underlying mantra is that the 鈥渇ront end鈥� of fixed income markets is a unique and distinct ecosystem and that technology built for other securities markets fails to capture the integrated decision making 鈥� across instruments 鈥� in use by participants in the MMF space.
GLMX today reflects that same ambition from 2010 鈥� to provide market-leading digital capabilities which closely align with the unique needs of the money markets. When expansion beyond repo is complete, GLMX technology will provide unparalleled, real-time access to liquidity pools across instruments and geographies, will greatly simplify the search for yield across instruments, will provide relative-value decision support within customised credit, concentration, sector and ratings parameters, and will introduce seamlessness in both trading and processing. These qualities will provide a super-efficient marketplace which will help the MMF complex compete in even the most challenging macroeconomic circumstances.
To bring full circle the idea above 鈥� that when technology genuinely provides a better, cost-effective way to execute critical activities, its adoption is assured 鈥� several MMF complexes already are working with GLMX to bring to life the enormous value of a comprehensive money market ecosystem. And, as always, we at GLMX welcome the opportunity to serve our clients more broadly and to mutual benefit in coming months and years.
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