Electronic trading

New EU rules electrify fixed income trading volumes: survey

New EU rules electrify fixed income trading volumes: survey

Volumes of electronic trading in fixed income have jumped since European Union rules introduced a year ago made it more cumbersome to execute over-the-counter (OTC) business, in a bid to make deals more transparent, a report said.

Stock-Exchange Veteran Chris Concannon Moves to Bond Platform

A pioneer of electronic stock trading is moving to the bond market.

Chris Concannon is joining bond-trading venue MarketAxess Holdings Inc. as president and chief operating officer, the company said. He comes from Cboe Global Markets Inc., CBOE which operates stock, options and futures exchanges, where he held the same positions.

A spokeswoman for Cboe declined to comment.

An advocate of electronic trading since the 1990s, Mr. Concannon, 51, is making the move in the relatively early days of the corporate bond market’s transition to automation.

While stock trading has become nearly automatic, taking place primarily in central online markets, corporate-bond trading remains a largely manual process. Bond traders still negotiate deals over the phone or via electronic messages.

Yet the market is changing quickly, driven by regulation, upstart platforms and new technology. A recent survey by Greenwich Associates, an industry consulting firm, found that 26% of corporate bond volume was traded electronically in the third quarter of 2018, up from 19% in the first quarter.

“I see the corporate-bond market evolving, and it’s following a pattern I’ve seen before in my career,” Mr. Concannon said in an interview.

A lawyer by training, Mr. Concannon joined Cboe in 2017 after it acquired electronic stock exchange firm Bats Global Markets Inc., where he was chief executive. Mr. Concannon also served as president and COO of Virtu Financial Inc., a high-frequency market-making firm that trades stocks, currencies and other assets.

Mr. Concannon said he expects the move to electronic trading to accelerate as rising interest rates continue to roil the markets. “We’re approaching the end of a 10-year bull market,” he said. “There will be active trading in fixed income while the volatility of the transition occurs.”

About 85% of electronic corporate-bond trading by institutions in the third quarter was on MarketAxess, Greenwich’s survey found.

UBS trials Netflix-style algorithms for trading suggestions

Picking an investment may soon start to be more like choosing a TV show on Netflix or finding new music on Spotify.

UBS is looking at applying recommendation algorithms to suggest trades to its asset management and hedge fund clients, similar to those used by a host of consumer technology companies.

The move is in its early stages of development, with the task of reliably recommending interesting trades to investors posing very different challenges from suggesting a new indie band to listen to or what fresh comedy show to watch.

Nonetheless, the broad theory behind the initiative is the same, as finance increasingly borrows from the innovations of Silicon Valley’s technology companies. Increasing cost pressure on banks, coupled with the rise of computer-powered market players, has pushed banks to boost investment in their technology and explore new ways to automate some of their core businesses.

“Imagine what the world looked like when you watched television and had to scan through channels, whereas now it is not only on demand, it is presented to you so you easily find what you are looking for,” said Giuseppe Nuti, who heads up data science in UBS’s FX, rates and credit Strategic Development Lab. “That’s what we are trying to do for our clients, presenting them with a choice of likely, interesting trades.”

Just as people once took recommendations for TV shows or new music from friends or industry critics, a bank’s clients have often listened to recommendations from trained salespeople. UBS is hoping to make this process more automated, taking inputs of a client’s previous trading behaviour to assess whether they might be interested in a specific transaction. And it’s not just for clients.

The technology should help pinpoint investors that will want to buy something UBS is trying to sell, and vice versa. “A good sales person calls his or her client and goes over what they think will be interesting for the day,” said Mr Nuti. “We are trying to automate that.

It means the job of a sales person, which in many ways has remained immune to the technology revolution, will likely change.” The algorithm is currently being trialled in the bank’s corporate bond trading business but there are hopes to roll it out to other asset classes as well.

At the moment, recommendations produced by the technology are sent to salespeople to decide whether or not they should be passed on to clients, but over time the plan is to eliminate the middle man. The challenge is finding enough data to plug into the recommendation engine for it to produce reliable results, said Mr Nuti.

Each new TV show watched, or song listened to, is indicative of the type of music or television that a person likes. But it is harder to group trades into similar themes, says Mr Nuti, because people execute transactions for very specific reasons.

Other electronic trading experts have also urged caution. “While it sounds intelligent and advanced, a client should definitely ask a lot of questions about the construction of such a recommendation algorithm,” said Christian Hauff, co-founder of Quantitative Brokers, a trading algorithm company. “Creating and managing a financial instrument portfolio is not the same as creating and managing a playlist.”

U.S. SEC panel recommends review of electronic bond trading rules

U.S. SEC panel recommends review of electronic bond trading rules

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.

The rolling bandwagon of automated corporate bond trading: Algos oust traders

The rolling bandwagon of automated corporate bond trading: Algos oust traders

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.

The SEC is taking a close look at the rise of electronic bond trading, Chairman Jay Clayton says

The SEC is taking a close look at the rise of electronic bond trading, Chairman Jay Clayton says
  • 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.

Bond trading: technology finally disrupts a $50tn market

Bond trading: technology finally disrupts a $50tn market

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.

Buy-side bond traders reevaluating traditional RFQ model

Buy-side bond traders reevaluating traditional RFQ model

Asset managers trading corporate bond markets are evaluating a move away from the traditional request-for-quote (RFQ) model, opting instead for electronic execution to meet best execution requirements.