Bond-Trading Revolution Ahead?

Terry Flanagan

Structural changes in bond and derivative markets have been mostly gradual and incremental since the late 1990s. But that is expected to change, and soon.

“It has been more of an evolution, not really a revolution,” said Lee Olesky, chief executive of electronic-trading platform Tradeweb. “The basic market structure has remained intact. The model has stayed the same.”

Speaking at Markets Media’s Fixed Income Trading and Investing Summit in New York, Olesky noted that some rules that have been developing for years are nearing finalization, which will meaningfully accelerate the rate of change for market participants.

The Commodity Futures Trading Commission will meet on May 16 to consider final rules on Swap Execution Facilities, signaling that market participants will soon need to trade swaps on open, electronic platforms rather than via private negotiations.

“One year from now, most derivative transactions will go through a SEF,” Olesky said. “This is a very big change.”

Aside from regulation, technology is the other big driver of change in fixed-income market structure. This is especially the case as bond trading and investing firms feel pressure to cut costs and achieve efficiency and scale.

“People need to operate lean and mean,” said Isaac Chang, global head of fixed income at market maker Getco. “Technology offers a way to get there.”

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