The electronification of fixed income markets is accelerating, driven by increased adoption of automated trading systems, with 60 per cent of credit market participants now using automated execution – up sharply from 40 per cent in previous years, according to Barclays’ latest market structure survey.
Read more: https://www.fi-desk.com/is-european-credit-electronification-bouncing-back/
The study, which polled over 100 institutional clients in the third quarter of 2024, reveals that in rates markets, 70 per cent of clients now execute a majority of their trades electronically. Barclays Research estimates the ceiling for electronic execution at approximately 80 per cent of market volumes, with the remainder likely to stay voice-traded due to size or complexity.
Tyler Wellensiek, head of fixed-income market structure at Barclays, points to the growing importance of integrated technology solutions: “Given the complexities of workflow and strong client demand to push the efficiency frontier, the liquidity providers who continuously invest in electronic platforms that are well integrated with a broader diversified franchise are best placed to support clients across their various needs.”
The survey highlights how portfolio trading – where managers trade multiple bonds simultaneously – has become a key driver of electronification in credit markets. This trend is supported by increasingly sophisticated analytical tools that enable more strategic execution of large bond portfolios.
However, the traditional Request for Quote (RFQ) protocol remains dominant across fixed-income markets. The survey also found that streaming protocols are gaining ground, particularly in rates markets where they have become the third most popular execution method.
The automation drive extends to “axes” – signals indicating trading interest in specific instruments – though challenges remain in standardising expectations around axed pricing. Market participants disagree on whether axed prices should be at market level, inside the market, at mid-price or through mid-price, creating friction in automated execution processes.
Looking ahead, market structure reforms, including the introduction of a consolidated tape in the EU/UK, have received mixed reactions from survey participants. Some of the professionals surveyed saw the potential for these changes to facilitate more systematic trading strategies.
©Markets Media Europe 2024
