The U.S. Securities and Exchange Commission should form a working group with two of its regulatory counterparts to review and harmonize the rules they use to police electronic corporate and municipal bond-trading platforms, an SEC subcommittee said on Monday.
Bond traders could receive a reprieve on the fees they pay under a new rule from the Securities and Exchange Commission requiring greater transparency.
The ruling revised rules on the fees brokers have to disclose on bond trades. The rule implemented by the SEC on May 14 requires brokers to disclose the fees they receive from corporate, municipal and agency bond transactions.
Bond trading is undergoing a quiet, but fundamental change: The automation of smaller-sized bond trades. Certainly, we are in the early days of this analogue-to-digital conversion, but the effects on the microstructure of bond markets are likely meaningful – especially with respect to the costs of execution. If you think smaller trades are not relevant in corporate bond trading: 90 percent of all trades are worth less than $ 1 million. In this blog post, I elaborate on how and why banks are starting to replace dealers with machines and describe why this is fertile ground for new electronic trading platforms. Finally, I propose a hypothesis on how trading costs may evolve in the future.
Currently ~80% of equity trades are done electronically while only 20% of fixed income trades that way. Why the gap? Fixed income instruments are customized products, which makes them difficult to price, less transparent and much less liquid.
The SEC has set up a special committee to look at the increased level of electronic trading in the bond market, Chairman Jay Clayton said.
Since the turn of the century the surge of bond trading platforms has made a dent in the traditional fixed income business.
Most of the trading is still done via phone call or chat services, but that is changing.
Abbie has enjoyed a brilliant start to her new job as a junior fund manager at AllianceBernstein, a $500bn investment group in New York. In her first three months she has handled thousands of bond trades worth nearly $19bn, never complaining, messing up or even taking a break.
That’s because she is an algorithm.
AllianceBernstein’s latest robotic employee did initially have a problem understanding some of the niceties of her human bosses — at first Abbie was stumped by what they meant with the word “please” — but she already handles about 35 per cent of their bond trades. The asset manager, which is considering the relocation of its headquarters to Nashville, Tennessee, is optimistic that Abbie will soon be able to automate large parts of the work of its two dozen human assistant portfolio managers.