Why Are So Many Fixed Income Leaders Investing in Electronic Market Makers?
We recently surveyed the industry's leading professionals at FILS Connect, and 57% told us that they intend to invest in Electronic Market Makers (EMMs) in the next 6 months. This perhaps reflects a strategic shift with important implications for the industry, where technology truly dictates the pace of trade.
Several factors are fuelling this rise in the adoption of EMMs. For example, the efficiency boost they can provide. EMMs provide instantaneous quotes and execution, reducing manual intervention and streamlining processes. This translates to tighter spreads, lower costs, and quicker response times for both issuers and investors.
Equally, EMMs operate on electronic platforms, offering real-time price discovery and order book visibility. This transparency fosters a level playing field, empowering investors to make informed decisions based on clear market information.
EMMs can also act as continuous buyers and sellers, even when traditional market activity is sluggish. This ensures smooth trade execution and reduces the risk of price gaps, especially in niche corners of the market.
Innovation is also a big factor at play here, as EMMs leverage advanced algorithms and machine learning, analysing vast amounts of data to generate insightful price signals and identify new trading opportunities. This gives them an edge in price discovery and risk management - ultimately benefiting investors.
EMMs can offer wider accessibility, allowing smaller investors to participate alongside large institutions. This broadens market participation and promotes a more inclusive financial landscape.
Beyond Efficiency: The Strategic Edge
EMMs offer more than just speed and convenience. They provide:
Enhanced Risk Management: Automated pre-trade checks and real-time monitoring minimise human error and ensure regulatory compliance.
Data-Driven Decisions: The wealth of data generated by EMMs provides valuable insights into market trends, investor behaviour and risk factors - empowering informed investment strategies.
Global Reach: 24/7 access to the global market allows investors to capitalise on international opportunities and diversify their portfolios.
Truly embracing EMMs requires strategic navigation however, and partnering with reliable and well-established EMMs with a proven track record is essential. Smooth integration of these platforms with existing trading systems also needs to be ensured, to maximise efficiency and minimise possible disruption. And, whilst technology clearly plays a pivotal role, human expertise remains invaluable for strategic decision-making.
The fixed income landscape is irrevocably changing, and EMMs will play a big role in this. By embracing their efficiency, transparency and innovative capabilities, fixed-income leaders can unlock new opportunities, enhance risk management and gain a competitive edge in this rapidly evolving market.
EMMs will be a key topic discussed at the FILS USA event. To download the event agenda to find out what else fixed-income leaders will be exploring, click here.