Pandemic propels the old-school obligations of traders towards an electronic future


LONDON (Reuters) – The mammoth bond market has long been the old-school bastion of the world of finance, but the COVID-19 pandemic has cast a light on his future and it seems to be electronic. Well, mostly.

FILE PHOTO: People walk through Canary Wharf, the financial district of London, great Britain, December 7, 2018. REUTERS/Simon Dawson

At the height of the market panic in March, Seattle-based Brandon Rasmussen, a senior fixed-income trader at $ 300 billion asset manager Russell Investments, had a client order to sell $ 2.5 billion of U.S. Treasury securities.

He found, however, that such a transaction was almost impossible in a highly volatile market that has no exceptions, even for one of the most sought after assets.

The dealers have refused to quote over the phone, adding to the stress of running a large order, without distorting the market.

The solution Rasmussen, has finally decided to break the order into small pieces and process them electronically – something that he may not have considered a few weeks earlier.

“The feedback we have had from the merchants was that they were not quoting on the phone. They could not do it, they could not continue like this,” he said. “I think this crisis has shown, is that really if you don’t have to do e-commerce, you should be to do e-commerce.”

His experience illustrates how the volatility caused by the crisis, with a new remote from the mentality of work of the house, has pushed more traders to make the digital shift, in a market that has always been lagging behind stocks and forex in electronification.

This trend is reflected in the undertaking on the bond-trading platforms.

For example, MarketAxess, one of the greatest players, enjoyed record trading volumes in the month of March. Rival Tradeweb, average daily turnover reached a total of $ 1 trillion in the month, a more than 41% year-on-year on year increase.

During this time, MTS, part of London Stock Exchange Group, said it won several large asset managers in Europe as clients during the crisis.

However, dealers stress that the brokers and customers talking to each other will long remain a key element of the industry, in particular in periods of increased volatility.

Even as Rasmussen went electronic to push through its trade, for example, it has been also talk to the buyers agreement “switches” – to pass a U.S. bond for another to share the risks.

The jump in electronic trading activity has coincided with a rush into government bonds as the coronavirus has created demand for safe-haven securities, then a strong sale, as investors have sold their most liquid assets to offset losses elsewhere.

Graphic: Electronic bond trading activity increases in March, here


Electronic trading – where trades are executed using the software on the online platforms, rather than through a broker-client “voice” trades – can carry major benefits for the 100 trillion more people, governments, and businesses of the debt.

Regulation MiFID II in Europe in order to improve transparency have also boosted the e-commerce.

For one, the merchants of the execution of transactions can quickly gauge market depth on their screens, freeing time for more complex trades. On the other hand, it proposes to reduce costs for investors; two dealers estimated 10%to 30% less expensive than the traditional voice trades.

However, while most of the obligations of the actors of the industry to recognize that much of the future is digital, many have been reluctant to go fully electronic.

About 45% of European fixed-income market electronically traded, compared to 38% a year ago, consultancy Greenwich Associates estimates. In the $6.6 trillion-a-day currency market, 90% of spot trading is performed digitally.

However, the COVID-19 crisis, the acceleration of the computerisation of the bond market, according to industry players.

Many, such as Tony Rodriguez, a UNITED states-based head of fixed income strategy at Nuveen Asset Management, said a need more liquidity, increased electronic trading activity.

“A lot of the trades have been pushed by electronic means due to greater liquidity and transparency – therefore, the crisis has pushed what was already in place,” he said.

Andrew Falco, global head of FX and fixed income trading at Fidelity International, London, credit electronic trading with enabling connectivity in a market that is suddenly dispersed by the remote work.

This type of technology has allowed the transition from working in an office to work from the kitchen table, he told Reuters.

It said some lessons had been learned about this last year when the Loyalty of Hong Kong the team has struggled to work in the office because of the unrest roiling the city.

“By 2020, we have refined the e-trading house set-up, and ensured that it worked well, if it was in hong kong, Shanghai, Dublin or the UK,” he added.

Chart: etrading impact on the liquidity of the bond market – Greenwich, here


For the banks that provide concessionaire and the performance of services, although, the electronic workstation may be dining in fixed income revenues during the March quarter, the results of bond trading on the world of more than 12 banks remained below the levels seen in 2014, the research firm Coalition calculates.

But they are also the acceleration of the push to digital services, in particular for the automation, which helps when volatility spikes.

JP Morgan, for example, uses an algorithm to help generate quotes on its platform FX, which include bonds, putting into service“, hundreds of thousands of requests for information” and the transactions “several thousands of transactions per day” during the crisis, said Tom Prickett, co-head of the EMEA region, the rate of the bank.

Another big player, Goldman Sachs, told clients mounted to calls for the computerization and automation of sales companies of obligations, up to now, a slow process performed manually.

“The crisis has revealed some of the gaps in the bright lights,” said David Wilkins, at Goldman sachs at the head of the FICC execution services in the EMEA region.

Investors and traders have acknowledged that the digital technology has been a saviour during the pandemic, a point of view expressed in a wide variety of sectors.

“Imagine something like this happening 25 years ago, when the e-mail did not exist, the electronic communication was not really there,” said Zoeb Sachee, head of euro linear rates trading at Citibank, which oversees the government bond trading on the European markets.


But, for the foreseeable future, at least, the bond market is likely to encompass the old and the new: technology and traditional trade models based on dealer-customer relationships.

The merchants of the European investment-grade corporate bonds during the crisis, often contracts negotiated by phone prior to use of a platform set, according to the International Capital Market Association (ICMA) report.

“The bond markets are very relationship-oriented and I don’t see how this is going to far,” said the report’s author Andy Hill.

Slideshow (3 Images)

This position was echoed by Falco to Fidelity.

“The point of view that we felt as a team, is that we use technology where we had confidence in the price that you could see on the screen, and when we do not have confidence in the price, we run it manually.”

Chart: Changes in the use of e-negotiation protocols during the crisis of the ICMA, here

Reporting by Dhara Ranasinghe and Saikat Chatterjee; Graphic by Ritvik Carvalho; Editing by Sujata Rao and Pravin Char

Our Principles:Thomson Reuters Trust Principles.


Please enter your comment!
Please enter your name here