Electronic Bond Trading Gains

Terry Flanagan

Electronic trading in fixed income cash and derivatives products is on an upward trajectory, with a proliferation of trading venues and matching engines at work.

“The amount of trading that happens electronically is still relatively small, but it is growing in the credit space,” said Isaac Chang, head of the fixed income trading business at KCG.

The ‘futurization’ of the large OTC derivatives markets and the potential for increased trading volume could result in higher volumes and subsequently more opportunities for electronic market makers.

“Fixed-income futures are being traded on a listed central order book like equities,” said Chang. “U.S. treasuries and other relatively liquid products trade on an inter-dealer basis on a central order book. As you get less liquid and the market becomes less transparent, you see less algorithmic trading. The more bespoke or illiquid a product gets the less electronic algorithmic trading is applicable.”

The trend of electronic bond-trading platforms being acquired has not slackened. MTS, a subsidiary of the London Stock Exchange, has agreed to acquire Bonds.com, a US-based platform for trading US corporate and emerging market bonds. Last year, MTS Markets International, a U.S. subsidiary, was approved as a broker-dealer to allow U.S. institutions to trade electronically with European dealers via its BondVision platform.

Since creating the broker-dealer business, MTS has been talking to sell-side and buy-side clients, with the eventual aim of combining the two businesses. In the meantime, MTS is investing in Bonds.com’s technology. For example, MTS has launched request-for-quote trading for exchange-traded funds on BondVision and this could be introduced to Bonds.com.

Liquidnet, an institutional trading network, has entered the fixed income market with its acquisition of bond trading platform Vega-Chi. The partnership combines Liquidnet’s reach within the institutional investment community with Vega-Chi’s corporate bond trading platform and sector expertise.

Electronic platforms in the cash fixed income markets include request for quote-based and order book-based dealer-to-customer models such as Tradeweb, MarketAxess, Bonds.com and Vega-Chi, as well as dealer-to-dealer platforms and single-dealer platforms.

In the derivatives sector, Trad-X, a platform for the trading of global interest rates swaps, has announced that its new Euro Short End product offering has matched orders approaching EUR 35 billion.

“Trad-X is the first successful hybrid central limit order book to provide trading in Euro Short End products,” Daniel Marcus, CEO of Trad-X, said in a statement. “The key to Trad-X’s success is the combination of our voice and electronic liquidity pools. Tradition’s network of European offices all provide hybrid entry points in to Trad-X Euros.”

Featured image via iStock

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