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Objectives of a «state-of-the-art» trading infrastructure in an increasingly complex bond market environment

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Author: Brian Mattmann

This blog is an extract from the «Swiss bond trading report 2018» that describes the evolution of bond markets and that provides an in-depth analysis on the trading infrastructure of Swiss investor (e.g. banks, securities dealers, asset managers). The report is available upon request; drop an e-mail to email hidden; JavaScript is required

Our research in that field is kindly supported by Diem Client Partner AG and Saxo Bank (Schweiz) AG.

It is a fact that bond markets have evolved considerably in the last two decades. Traditionally, bond markets have been a combination of a decentralised market structure with dealers at its core, providing voice-based market-making to a fragmented, relationship-based network of clients, and an interconnected inter-dealer market allowing dealers to source liquidity. This historically evolved market structure experienced a major shift before the turn of the 21st century with the introduction and adoption of electronic trading platforms and the subsequent rise of electronic trading. Since then, technological innovations have progressed and fundamentally changed the way market participants interact with each other. Nowadays, market players are increasingly interconnected, trading is progressively technology-driven and the traditional roles between investors and dealers are blurring. Moreover, ongoing regulatory initiatives are enhancing market transparency and contribute to an environment in which the processing of data and market information are playing an ever more important role. As a result, bond markets have reached a degree of complexity that investors are hardly able to handle without the appropriate technology in place. In short: Today, technology is key to efficiently detect, aggregate and trade liquidity. The figure below illustrates how the microstructure of bond markets have evolved.

Figure 1: The introduction of electronic trading platforms and the re-shape of the market organisation (Source: Swiss bond trading report 2018)

Nowadays, the landscape of trading innovations is vast – particularly in the area of electronic trading platforms. The «Swiss bond trading report 21018» detects 33 electronic execution platforms that are currently operationally active. The majority of these platforms allow for A2A-trading (=14 platforms), eleven platforms connect dealers with investors (D2C) and nine electronic trading platforms are inter-dealer venues connecting sell-side firms (D2D). One platform enables client-to-client trades exclusively (UBS Bond Port, formerly known as UBS PIN). See the table below with an overview of the detected electronic trading platforms (a description of each platform can be found in the «Swiss bond trading report 2018»).

It is evident that today the landscape of trading platforms is fragmented. Making well-informed trading decisions across this complex universe of trading venues is difficult since gaining an aggregated view is hardly possible without the right technologies in place. A number of companies have detected this data fragmentation issue and offer solutions to collect data from the various sources like electronic trading venues, messaging platforms and voice-channels. Some tools do not only provide an aggregation of this data but also enable investors to trade efficiently on multiple trading venues. To operate in this environment efficiently, it seems important to develop appropriate trading systems. A «state-of-the-art» trading infrastructure ensures

  • connectivity to multiple trading venues;
  • aggregation of multiple sources of liquidity from different platforms;
  • a streamlined trade workflow;
  • analytical tools to assess the cost of transacting

It seems unquestionable that the future of bond markets is not the traditional status quo in which investors are solely connected to a set of dealers, but rather in a market organisation where all market participants are interconnected and where technology is key to detect and trade liquidity. The «Swiss bond trading report 2018» provides an overview with tools providing solutions to overcome the fragmentation issue of electronic trading platforms.

 

Electronic trading platform Platform type
BGC Trader D2D
Bloomberg ALLQ D2C
Bloomberg BBX A2A
Bondpoint D2C
BrokerTec D2D
BrokerTec Direct D2C
Candeal D2C
CastleOak DirectPool D2C
Clarity BidRate A2A
Dealerweb D2D
EMBonds A2A
Euronext Synapse D2D
ITG POSIT FI A2A
LiquidityEdge Direct A2A
LiquidityEdge Select A2A
Liquidnet Fixed Income A2A
MarketAxess A2A
MTS Bonds.com A2A
MTS BondVision D2C
MTS Cash D2D
OpenBondX A2A
OpenDoor Trading A2A
Saxo Digital Bond Offering D2C
SGX’s Bond Pro Platform D2D, D2C
SIX Corporate Bonds D2D
Spain SENAF D2D
Tradeweb Blast A2A A2A
Tradeweb Direct D2C
Tradeweb Institutional Platform D2C
Trumid Market Center A2A
TradingScreen – TradeCross A2A
UBS Bond Port C2C
Yieldbroker D2D, D2C
Table 1: List of electronic bond trading platforms (Source: Swiss bond trading Report 2018; single-dealer platforms and exchanges are not included)

 

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