ICMA Maps European Fixed Income Trading 

Shanny Basar

The International Capital Market Association said European bond trading is becoming more electronic and fragmented and has mapped 22 platforms in the region to allow investors to make comparisons.

ICMA has compiled a database of 22 European electronic fixed income trading platforms and listed their features and capabilities to allow market participants to determine which platforms best suit their investment or trading strategies.

The trade association, which represents a variety of participants in capital markets, said in a statement that dealing is increasingly moving to a variety of different electronic trading platforms as regulations have led to banks cutting their balance sheets.

“The fixed income landscape is currently very fragmented. This is particularly the case in corporate bonds where it is often heard that liquidity is ‘a mile wide and an inch deep’,” added ICMA.

ICMA continued that technology is the only way for sellside and buyside traders to uncover available liquidity.

The International Monetary Fund praised electronic bond trading platforms in its latest Global Financial Stability Report last month. “A positive development has been the emergence of electronic trading platforms, which has probably made it easier and cheaper for buyers, and sellers of financial instruments to find each other,” added the IMF. “Likewise, more trade transparency in bond markets has improved liquidity.”

The IMF also warned that in extreme conditions, a sharp drop in liquidity could threaten financial stability since several asset markets, for example, bond and repo markets, can freeze at the same time as happened in the global financial crisis. When interest rates rise liquidity in the corporate bond market will probably fall said the IMF due to structural changes such as a less diverse investor base, the proliferation of small bond issues and banks’ retrenchment from trading.

Gaston Gelos, chief of the global financial stability analysis division at the IMF, said in the report: “In recent years, factors such as investors’ higher risk appetite and low interest rates have been masking growing underlying fragilities in market liquidity.”

Consultancy Celent estimated in a report last month  that European cash fixed income secondary trading activity has tightened by 2.3% between 2014 and 2015.

Celent said the interdealer-broker government bond market is still dominated by MTS and BrokerTec while the dealer-to-client government bond market is still dominated by Tradeweb and Bloomberg.

“The D2C non-government business has grown dramatically and has seen a slight increase in electronification, but also some additional voice business thanks to sales technology,” added Celent. “The IDB non-government market is flat year on year, but with big market share swings. EMEA emerging economies are still attractive for D2C electronic platforms.”

Joséphine de Chazournes, a senior analyst with Celent’s Securities & Investments practice and author of the report, said in the report that the buy- and sellside are heavily focused on solving the liquidity issue in the non-government bond market and some venues are picking up market share through creative protocols.

She said: “Interestingly some tier 2 and tier 3 banks have continued to grasp market share with their recently built global electronic capabilities, as large buyside clients now allocate their flows to a much greater number of sellside firms.”

Paul Blank, blogged on the singledealerplatforms.org website that not all the new initiatives will survive, as shown in July when BondCube closed after just three months.

“In terms of market share concentration, it seems just like in FX the top-tier banks still dominate fixed income, and according to Celent analysis the top five banks have 50% share in European fixed income trading,” added Blank. “However, just like in FX the top banks are beginning to lose market share to regional Tier 2 & 3 banks.”

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