A new product from inter-dealer broker GFI Group Inc. aims to help hedge fund investors appreciate the correlation between credit and equity market instruments, and to benefit from hitherto unexploited trading opportunities.
The days when bond traders, equity traders and credit derivative traders went about their business with little or no reference to each other's business are disappearing fast in an era when the importance of the credit market to equity investors is increasingly understood and acted upon, according to Michael Fuhrman, a New-York product manager with inter-dealer broker GFI.
A multi-asset class approach, Fuhrman argues, offers equity investors a much broader and deeper market view than a single class of security on its own. 'It allows you to glean information from the credit markets, which tend to focus on the risk element, whereas the equity markets tend to focus more on the forward-looking upside,' he says. 'Equity research is always about the good news that's coming.'
The growing acceptance of this approach is what prompted GFI to create MarketHub, an online information platform that pulls together a mix of historic and real-time market data, analytical tools, and specialist news and analysis on a single platform in order to identify and examine correlations between the credit and equity markets.
MarketHub, the first version of which was launched in January and is being marketed in the US and Europe, incorporates equity and equity derivatives data from 25 major global stock exchanges, financial market commentary from Dow Jones, credit market news from Informa Global Markets and credit default swap data from GFI's own brokerage desks as a leading international specialist in credit derivatives.
Says Fuhrman: 'We're trying to combine information from as many asset classes as we can about a given issuer in one platform and a single view. This is a fairly new concept in the marketplace - I don't know of any competitor that provides all this in a single location. The market response has been already very positive, even though it's still early days and MarketHub is still in its first version.'
He adds that improvements in development for the product aim to extend its functionality significantly, notably by making greater and more sophisticated use of GFI's own data. Says Fuhrman: 'We want to offer more in terms of linking equity signals to credit default swap signals and allowing users to set alerts when the relationship between any of the three instruments - equity, equity options and credit default swaps - changes in any way that we can describe.'
GFI's brokerage business, launched in 1987 and accounting for 95 per cent of the group's revenues, encompasses credit derivatives, fixed income, foreign exchange and FX derivatives, interest rates and repo, equities, property and commodities, the latter an eclectic mix of instruments that includes metals, energy, pulp and paper as well as environmental credits, freight and weather derivatives. The rest of the business consists of data and analytics, a business built around the acquisition by GFI of the market-leading FENICS FX foreign exchange pricing platform at the beginning of this decade.
Fuhrman says the analytics business is fuelled by GFI's role as a leading brokerage in specialist markets. He says: 'The brokerage business is how we take the pulse of the market and where we get our input from. Often analytics start life internally as tools to assist the brokers. If they're robust enough, the output is endorsed by the dealer banks, and in some cases we've turned these internal tools into external commercial products.'