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Fixed Income Trading: The Rush to Adopt New Technology Platforms

Jan 05. 2015

Given ongoing trends in rising costs and dwindling revenues, fixed income has been under pressure for some time now. This has forced many banks to overhaul their trading operations, and in the past few months, there has been a flurry of announcements around the launch of new electronic platforms from Citi, Deutsche Bank, Goldman Sachs, Morgan Stanley and others.

One of the reasons for this, perhaps, is that trades are getting smaller in size, and this is driving institutional traders to look to electronic book orders to complement their workflow and liquidity search. The uptake of e-trading technology in the sell-side fixed income space comes during a period of low fixed income liquidity, especially in the corporate bonds market, where these platforms can provide new ways for investment banks to greatly improve the efficiency of their dealing activities. Furthermore, to avoid the changing of prices in less liquid markets, traders have also started to break up large single trades into smaller amounts that can be bought or sold gradually over the course of a day.

One of the most visible components – and greatest benefits – of e-trading for fixed income markets is increased market transparency. In fact, many electronic platforms use transparency as a central feature in the trade process. For example, electronic order-matching systems show the exact position of the market in real-time. Traders are also now looking to new technologies, such as mobile apps, that offer access to the market news and data they need when they’re away from their desks. Most available apps provide bond market news feeds, live bond yields and spreads, and government bond auction calendars via iPhone, iPad, Android and Blackberry devices, thereby connecting traders to the markets when they’re on the move.

One specific industry milestone includes a recent announcement from FIX Protocol Ltd., the non-profit industry standards organization behind the electronic trading standard FIX Protocol, regarding best practices and implementation guidelines for the electronic trading of bonds. These recommendations apply to both existing and emerging venues, broker-dealers and market makers and explain how they can use the FIX Protocol to support their platforms. They complement recommendations released in 2012 to support the trading of Credit Default Swaps and Interest Rate Swaps, which are currently being implemented by a number of Swap Execution Facilities, and will enable bond market participants to benefit from cost effective and efficient connectivity to the growing number of bond trading platforms emerging across the US and European markets.