Author: Brian Mattmann
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|
|ITG POSIT FI||A2A|
|Liquidnet Fixed Income||A2A|
|Saxo Digital Bond Offering||D2C|
|SGX’s Bond Pro Platform||D2D, D2C|
|SIX Corporate Bonds||D2D|
|Tradeweb Blast A2A||A2A|
|Tradeweb Institutional Platform||D2C|
|Trumid Market Center||A2A|
|TradingScreen – TradeCross||A2A|
|UBS Bond Port||C2C|
|Table 1: List of electronic bond trading platforms (Source: Swiss bond trading Report 2018; single-dealer platforms and exchanges are not included)|