What is Aladdin Trader? BlackRock’s fixed-income tool still a mystery

On LinkedIn, the profiles of several BlackRock employees, both past and present, mention an exciting-sounding service called “Aladdin Trader”. The confusing thing? That product doesn’t exist—at least there’s no mention of it on the Aladdin website or in public comments.

So, what is Aladdin Trader? According to one BlackRock insider, it has the look of an execution management system, but that’s not what they’re calling it.

“Aladdin Trader is an EMS functionality built within the OMS. We can’t sell Aladdin Trader to someone who doesn’t use Aladdin. So, someone that uses Aladdin can use the EMS functionality; it’s just embedded in the OMS,” says the source. “It’s an internal project—maybe more an internal-like protocol. But you wouldn’t find Aladdin Trader on the website. Aladdin is an expensive product, right? And it has many modules that firms just wouldn’t hear about in any way as they’re proprietary and not sold separately.”

BlackRock did not respond to a list of questions and declined to comment. So, it’s not clear what stage the project is at, or what BlackRock’s ultimate vision is. Oddly enough, BlackRock mentioned Aladdin Trader for the WatersTechnology Buy-Side Technology Awards—which were announced earlier this month—saying that “users can now directly engage with counterparties by leveraging native fixed-income order and execution management functionality embedded within Aladdin.”

Aladdin does not currently offer a standalone execution management system, and the company has not said that it plans to create one. Rather, the platform has built-in bespoke execution tools and has partnerships with third-party EMS providers. But sources who have either seen Aladdin Trader or who have heard about it say that it will build upon Aladdin’s current execution functionality, though it might toe the line of being an actual EMS.

The thing is, they are trying to break into a market that already works very well for us and the barriers to entry are quite high

Trader at a UK hedge fund

A head of fixed-income trading at a European asset manager who uses Aladdin says they have seen a demo of the trading workflows from what they call Aladdin’s “direct execution facility”. They add that they believe it to be “a point-to-point bilateral execution tool”.

“If I see a price from JP Morgan, I can click that I’d like to trade $2 million at that price with JP Morgan. The bid OKs, it goes off to JP Morgan, and it comes back to say ‘done’. All of that execution is done within the Aladdin infrastructure. As a user, we don’t need to open another GUI or platform to carry out the transaction,” they say.

However, the fixed-income trading head adds that they view the functionality to be “very basic” and that other multi-asset class EMSs—such as FlexTrade, FactSet’s Portware, Virtu’s Triton, and TradingScreen (which merged with Imagine Software to become TS Imagine in 2021)—already offer established execution capabilities.

The head of fixed-income trading at a large US hedge fund notes that BlackRock’s current execution services—through bespoke offerings and partnerships—are “pretty good”.

A trading head at a large UK-based asset manager, who says they helped BlackRock build some “basic” execution functionality, says they would prefer if Aladdin focused time and resources on enhancing its OMS by adding more “visualizations and pre-trade tools” to help portfolio managers and traders manage orders better.

“We’d rather they put their capabilities into that core functionality rather than trying to build new trading capabilities. For some small funds, it might be better to have it all in one place, but we want a huge amount of detail in our EMS. … The thing is, they are trying to break into a market that already works very well for us and the barriers to entry are quite high,” the trading head says.

Friends and competitors

The world of fixed income is fragmented and automation has been slow to take hold. Aladdin has been described as an investment management platform “built by fixed-income guys, for fixed-income guys”. Today, it is largely a multi-asset class investment platform that is seen as a success in the sense that BlackRock was able to externalize what was initially built as an internal product.

If the platform is lacking in any arena, it would be in the field of built-in execution management services. But those current and former employees WatersTechnology spoke with say the firm never felt the need to create a standalone EMS because it had execution covered via bespoke tools and partnerships.

For example, BlackRock entered a partnership with FlexTrade in May 2021 to integrate FlexTrade’s multi-asset EMS capabilities with the Aladdin platform. And in February 2022, BlackRock announced a similar partnership with FactSet for the Portware EMS.

In a June 2022 conversation with WatersTechnology, Daniel Gourvitch, who was global head of platform for Aladdin at BlackRock at the time, said BlackRock was committed to “deep integrations” through these partnerships. “Building deep integrations takes work, time, and effort—both to build, but also to maintain. We undertake partnerships in a conscious and deliberate way,” Gourvitch said.

BlackRock declined to comment on what Aladdin Trader will mean for these integrations; FlexTrade declined to comment and FactSet did not respond to requests for comment.

Furthermore, fixed-income trading flow is dominated by the Bloomberg, MarketAxess and Tradeweb trading venues, all of which Aladdin already connects into. And while the push for electronification in fixed income compared with the worlds of equities and foreign exchange has been slow, these platforms have helped push it along.

Tradeweb has over 2,500 clients in its network, consisting of banks, asset managers, hedge funds, insurance companies, wealth managers and retail customers. It deals with government bonds, mortgage securities, municipal bonds, credit and derivatives, among other fixed-income products. Meanwhile, MarketAxess has over 2,000 institutional investor and broker-dealer firms actively using its institutional-only platform. And Bloomberg provides trading support for cash bonds, repos, credit default swaps, interest rate swaps, exchange-traded funds, equity derivatives and FX derivatives.

This is important to note, says a fixed-income specialist, because unlike equities and FX, fixed income is nuanced in how much EMS providers can facilitate the proportion of clients’ flow.

“If it is specific solutions they’re delivering, it might be for 10% to 12% of their flow. You can build more automation, but you need the market data, and for that, you need to be close to the venue, hence why you tend to see everything still going through Tradeweb, MarketAxess, and Bloomberg,” they say.

What an EMS does, however, is act as a liquidity aggregator. The fixed-income specialist says that from a buy-side perspective, an EMS would be necessary—particularly if it’s under Mifid II regulation—to prove best execution across multiple venues. Secondly, it can provide a real-time view of market color and analytics to allow traders to respond to the latest information.

There will inevitably be some liquidity overlap among the three major venues, but one may have strength over another in some assets and markets. That’s where an EMS could play a part, by aggregating liquidity from multiple venues to give traders a more holistic view.

It is still unclear how Aladdin Trader will interact with these venues. Bloomberg, MarketAxess and Tradeweb declined to comment for this story.

Fixed-income EMS discontent

A portfolio manager at a small US hedge fund that specializes in fixed-income trading says the EMS has become a main focal point for panelists at fixed-income conferences and webinars in recent years. They say the OMS providers “never really looked far down the path on the execution side”.

A report by Coalition Greenwich titled “Fixed-Income EMSs: The Time Is Now”, found that all 41 buy-side firms surveyed—73% asset managers, 20% insurance firms, 7% hedge funds—said that a fixed-income EMS gives them an edge while trading, with 90% saying that these systems help their firms meet best execution obligations.

According to the report, buy-side traders have typically relied on their OMSs and trading venue front-ends to provide them with the broadest possible view of the market when seeking liquidity.

Previously, this approach made sense as data was less available, and liquidity sources were slim. That has since changed, and there is now more data readily available and more liquidity sources to which the buy side has access. These catalysts give newer EMSs an advantage as they have been built using new technology, allowing traders to operate in real-time and in a much more electronified environment.

The problem, says the hedge fund portfolio manager, is that the quality of the product can be suspect. “Over the last four or five years, people have not gotten out of their EMSs what they thought they would, and that’s probably led to BlackRock Aladdin thinking there’s now an opportunity to build something that doesn’t have to shoot the lights out, but just offers connectivity,” says the source, and who has heard about the project.

This dissatisfaction has led some asset management firms to opt to build their own EMS. A fixed-income trading head at a second large US-based asset manager says their firm decided to go this route because the OMS—Aladdin or otherwise—is only a “decent staging platform,” because it complies with rules and regulations.

“That is primarily what we use it for. In terms of having to go to three separate vendors whenever we execute a trade or route, either manually or through voice chat, if we went through our own EMS platform, then we control the data that gets sent out,” they say.

We’re on the early edge of EMS adoption in fixed income. This transition hasn’t been quick—it’s been a slow-motion surprise

Portfolio manager at US hedge fund

The fixed-income trading head says that by building its own system, the firm can add capabilities like auto-execution or fixed-income algos, the same way they are used in equities and FX.

“Essentially, you use platforms like Aladdin, Charles River, etcetera, because you don’t have the resources to build your own. And there’s a cost associated with that. But we’ve looked [at the tools on the market], and they’re quite expensive. So we’ve been using the technology resources that we have in-house to create our own system instead,” they say.

The hedge fund portfolio manager says OMS providers have certain expertise, but since they never put the budget into building out their execution capabilities, they fell behind, and it’s tough to catch up in this space.

“They’re just not ‘pipes guys’—that integrative work is very detailed. And it’s not that any one of them can’t do it, but they’ve got a lot of other stuff to do. Capacity and development resources are dear and there are only so many things you can work on at the same time,” they say.

It’s not that the OMSs can’t also achieve that, says the source, but it takes a bigger team, and more time and effort—all at the expense of other projects. At the end of the day, for all that effort and budget, they’re still only delivering 70% to 80% of what their clients ask for in an EMS, leaving the rest undone.

“We’re on the early edge of EMS adoption in fixed income,” they add. “This transition hasn’t been quick—it’s been a slow-motion surprise.”

Additional reporting by Josephine Gallagher.