Patrick Scheideler is the Co-Founder of MultiLynq.
What are your customer’s pain points and how have they changed from 1 year ago?
The electronification of the fixed income markets continued to gain momentum with the ongoing pandemic disrupting the traditional fixed income trading workflows. Market volatility, paired with said disruption, has accelerated the timeframe for adoption of automated trading solutions for a variety of market participants. In particular, in the corporate and municipal bond markets, buy-side clients need to maximize access to pre-trade pricing data to ensure best execution, while liquidity providers require streamlined price distribution. Even in a “normal” environment, this proves difficult to accomplish manually, and the recent work and market dislocations have accelerated industry demand for automation and efficiency of pre-trade price discovery, distribution, and execution across the trading venues. While fixed income e-trading is growing, every trading venue is unique, and accessing them can be complex. Now more than ever, clients require a rapid, simplified solution for electronic trading.
What are your expectations for 2022?
The fixed income market continues to become more digital, with the electronic trading of investment grade corporate bonds reaching an all time high in 2021, according to Greenwich Associates — a trend which shows no signs of slowing down and we expect to continue to accelerate in 2022. While the industry had previously been slow to adopt changes in market structure or new trading protocols, it is clear that electronic bond trading has gained enough momentum to be considered a mainstay in fixed income. The largest electronic platforms have effectively introduced Portfolio Trading, while newer entrants to the electronic space have seen rapid adoption.
In a speech this fall, SEC Chairman Gary Gensler signaled interest in greater accessibility and transparency across fixed income, with all signs pointing to increased focus on regulation in the bond markets in 2022. Electronic trading is the most efficient mechanism to achieve greater transparency in any market. In an industry that thrives off greater liquidity and transparency, ease of access to actionable pricing data for both sides of the liquidity equation will further accelerate the uptick in electronic trading in 2022.
What trends are getting underway that people may not know about but will be important?
Recent progress in electronic trading has been largely driven by the fixed income ETF market makers. The increased liquidity and price transparency has caught the attention of the systematic trading community. While the increased adoption from the buy-side is a key trend to monitor in the evolution of corporate bond electronic trading, the potential for meaningful participation from the quant funds would be particularly encouraging. Broader participation of this audience will drive deeper, more liquid markets, to the benefit of all investors, and ultimately incentivize the further adoption of all market participants. The flows into fixed income ETFs have been a key driver of this evolution as the market moves toward a more automated, efficient era. Even there, we see significant room for growth, as US fixed income ETFs currently comprise only 2% of the US fixed income market, according to Fitch Ratings. Meaningful growth in participation from quant funds and other buy-side players is inevitable as the drive for efficiency accelerates.