Fixed Income Leaders USA Summit 2021

June 22 - 23, 2021

Online (ET)

Pushing the Boundaries of e-Trading with Innovation

Following stabilized real yields and controlled inflation, the global fixed income market seems to have finally returned to standard levels of volatility. Corporate bond markets have grown significantly over the past few years, while dealers’ appetite to stock bonds in the inventory to facilitate trade has reduced. Experts predict that markets will continue to cash in on Above Trend Growth rising from 65% to 70%, with the near term possibility of recession coming down to zero from 5%.


There are however, a couple of areas where experts believe that the current market is comparatively frothy. Bank loans and private debts are asset classes which are witnessing tremendous inflow, fueling new levels of uncertainty.

This swing in market dynamics isn’t novel, but it’s not the end of the story. It signals a new beginning for the market and its participants who are showing unprecedented levels of resilience, resolving to innovate and adapt to the changes. At the forefront of this transformation lies technologies like electronic trading which are contributing to changes in market structure, the nature of liquidity provision and the procedure of price discovery.

Experts say that in some fixed income securities, electronic trading has reached a similar level to that of the foreign exchange and equity markets. One example of a highly electronic fixed income market is the US Treasury market. It showcases a substantial proportion of trading in the benchmark securities which are done via automated trading.


A recent report developed by a Study Group chaired by Joachim Nagel (Deutsche Bundesbank) demonstrates how changing business dynamics are affecting the market function and structure. The report also sheds light on the progressions of trading protocols and volumes in each market segment.

Briefing a survey on trading platforms, the study documents that automated and electronic trading leaves a positive impact on market quality. However, the report reveals that the risk lies with liquidity which is less robust, and prices have become more sensitive to direct flow imbalances. Moreover, in particularly high-frequency automated trading environments, e-trading poses several challenges to policymakers. These include the need to supervise the trading effect on market functioning and liquidity, to ensure effective monitoring of automated trading.

Envisioning a Transparent Marketplace


Since the 1990s, e-trading in the US has been on a steady incline towards municipal and corporate bonds. At the beginning of 2017 there were 128 online bond trading platforms. As a consequence of the financial crisis in 2008 regulatory reforms were increased in both capital and liquidity requirements for banks. They were restricted to trading with reduced market liquidity, which eventually paved the way for e-trading platforms.

Today, digitization has reduced the involvement of broker-dealers since the volumes on e-trading platforms are higher for liquid securities. This also means that the transaction costs have been minimized, resulting in decreased profitability for the intermediaries. Inevitably, this has been very positive for the investors.

In the pursuit of building a transparent market, Wellington Management outlines the framework for effectively using e-platforms in the right places to bring maximum benefits to the client. The company believes that transparency can be achieved in alignment with the client’s objectives, determination of specific trades, prevailing marketing conditions at the time of ongoing trade, and the availability of tools.


While voice trading still plays an essential role, market strategists and macroeconomic analysts need to identify cyclical and structural risks as well as opportunities, and they must conduct fundamental research to mine, dig, and crystallize fixed income insights. A deeper and broader perspective could help companies in anticipating changes in the issuers’ capital structures before they are priced into securities.

Despite ushering in a range of benefits, e-trading has struggled to evolve as an industry norm. Today, a major chunk of the trading activity still happens over chat messaging or telephones. Research conducted by Greenwich Associates reveals that more than 80% of the roughly $6 trillion traded in the US annually is still executed and matched over instant messenger or telephones. The industry still relies on large and diverse ecosystems of market participants to facilitate retail, wholesale and corporate trading of fixed income products.

Leveraging Data Science and Analytics – The Next Frontier

There’s no denying that e-trading platforms have helped centralize market participants, and the underlying technology framework has played its part in simplifying how they communicate and process trade. Going forward, we’ll see more of these systems leverage advanced data science to become more informed, efficient and intelligent. Actionable insights derived from targeted data sets will help trade facilitators to simplify processes like determining counterparties, identifying market liquidity and executing trade operations across diverse market structures.


While e-trading was once solely focused on curbing inefficiencies, today technologies like machine learning are already helping investors to leverage actionable data to make informed decisions. In fact, several financial institutions have already started to deploy smart data analytics platforms to drive productivity and profitability from fixed income assets. For instance, last year in October, JP Morgan collaborated with Mosaic Smart Data to boost its fixed income sales. By leveraging the real-time predictive analytics platform, JP Morgan wanted to accurately offer customized client services. Eventually, this innovative technology helped the company to better visualize the market and anticipate complex trends while offering better services to its customers.

These developments suggest an exciting future for the global fixed income market. To make the most out of it, industry players will quickly have to adopt larger roles, create cleaner data management policies and devise intelligent and integrated workflows.

Make sure to download the Fixed Income Leaders Summit agenda to check out all of the great activities, speakers, and sessions planned for this year.


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