The Financial Times recently published a paper called ‘Bond trading: technology finally disrupts a $50tn market’, which highlights just how much of a radical impact technology can, and is beginning to have on the world of fixed income.
The bond market has traditionally been slow to adopt electronic trading solutions, particularly for larger, more illiquid deals. This report aptly compares this particular idiosyncrasy of the bond market with why we might be happy to purchase a TV online, but certainly not a house - a far more complex transaction that requires an intermediary to navigate various sensitivities.
However, the report more interestingly explores why and how the bond market is now beginning to show its readiness to use technology which enhances trading efforts...
Wigglesworth and Rennison open by referencing ‘Abbie’, a fund management algorithm at AllianceBernstein which is set to "automate large parts of the work of its two dozen human assistant portfolio managers”. ‘Abbie' was slow to emerge compared to her stock market counterparts, but with onerous regulations affecting banks among other factors, developments like ‘Abbie’ are proving that the market is keen to find ways to streamline elements of trading that can be achieved in better, more efficient way, by using technology. To support this belief, the paper quotes Guy America, Head of Credit Trading at JPMorgan, saying: “we want salespeople and traders focused on selling and trading rather than spending time on the clunky bits we can automate”.
LiquidityChain’s Jeremy Venables comments, "This has been a particularly interesting read for our team, as LiquidityChain has been specifically designed to electronically enhance the trader-broker workflow, by doing all the pairing of interests and flagging of opportunities, allowing brokers and traders to spend more time on the parts of bond trading that require the ‘human touch'. In this sense, our product enhances and works seamlessly around the relationship-based nature of the bond market to facilitate liquidity in a hybrid way that caters to its nuances whilst also dragging it into the 21st Century. Reports like these seem to solidify the reasoning behind why we chose to build LiquidityChain exactly, to cater for this need."
Another recent article from TabbFORUM supports the existence and validity of this approach in today’s climate, reporting that "While the role of electronic exchange-based trading within the US credit market surely will continue to grow, the adoption of electronic solutions will play out as both an addition to and extension of the robust relationship-oriented trading occurring today. Recognizing that this facet of the market is integral within the current market structure, providers have begun to innovate with new ways to electronically enhance traditional credit market workflow.
Read the full report from the Financial Times, here:
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