“Electronification” and The Technology Revolution in Corporate Bond Trading

Traders Magazine Online News, March 1, 2019

The term “Electronification” is thrown around a lot when talking about advances in the corporate bond market. It describes the nascent trend of using technology to trade in a marketplace where the vast majority of trades are still negotiated over the phone. Since electronic execution only accounts for roughly 20% of U.S. corporate trading volume, one might wrongly assume that efficiencies are slow to come by.

But just because a bond isn’t executed electronically, does not mean technology didn’t play a crucial role in getting the trade done.

Five years ago, if you walked by my corporate bond trading desk at one of the largest asset managers you would have seen frantic phone calls, a trader scribbling a price into a notebook, and a portfolio manager skimming through inventory spreadsheets from dealers. To put it simply, corporate bond trading was antiquated.

Today, that desk looks completely different – dare I say, calm even? This is a direct result of the advancements being made throughout the entire trade lifecycle, which we’ve witnessed first-hand at Tradeweb. Regrettably, many of these technology advancements are not quantifiable by industry standard metrics and are often underappreciated in the “Electronification” story.

Previously, pre-trade pricing information was scattered in emails, on scraps of paper and over phone calls. Now, that data is electronically organized and parsed through the aggregation of streams, axes, inventory and dealer runs that are directly routed into a client’s Order Management System (OMS).

At the execution level, All-to-All trading opened an entirely new channel of liquidity where the buy-side and dealers could trade directly with each other anonymously. Advancements aren’t stopping there - Portfolio Trading is becoming immensely popular with the proliferation of the Fixed Income ETF ecosystem, enabling designated portfolio traders at banks to access bonds via ETFs and more easily facilitate pricing client trades. A client may have a very large, market-moving trade and would prefer to utilize a designated portfolio trader at a bank to price that trade to avoid information leakage. As the Fixed Income ETF ecosystem continues to flourish, Portfolio Trading will only become more dominant.

At the post-trade level, the “electronification” continues with Multilateral Net Spotting, an innovation which truly changes the landscape for credit markets around the world. Tradeweb’s patent-pending Net Spotting technology allows clients to have one spot price for a given Treasury benchmark across multiple dealers. In 2018, $152 billion of volume was put through Netting, enabling clients to tap into $2.8 million of never before possible savings.

In fact, here are some examples:

Voice Processing: Eliminate the Need for Traditional Ticket Sending

For more information on related topics, visit the following channels:

• Fixed Income