Trends in Fixed Income Trading 2014

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Transitioning from a Principal Model to an Agency Model

GreySpark Partners presents a report exploring the increasing use in 2014 of the use of e-trading technology by sellside institutions to deal corporate bonds and interest rates swaps (IRS). The uptake of e-trading technology in the sellside fixed income space comes amid a period of low fixed income liquidity, especially in the corporate bonds market.

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This report highlights how e-trading technology can provide new ways for investment banks to maximise the efficiency of their dealing activities as part of a broader effort across the industry to move from a principal model of trading to an agency, broking-centric trading model.

GreySpark forecasts that sellside efforts to develop e-trading business models for trading bonds will evolve to match a new set of industry practices that emphasise balance sheet efficiency.

In many banks, the business model imperatives governing balance sheet efficiency are seen as the costs associated with new investments in technology solutions that allow for more sophisticated fixed income dealing analytics on a trade-by-trade basis, especially in corporate bonds trading.

For IRS, GreySpark’s research shows that the majority of OTC derivatives volumes will become e-traded by 2016 to match current levels of e-trading overcapacity for all but the most exotic swaps instruments.

Published on: 2 Jun, 2014

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Trends in Fixed Income Trading 2014 – Table of Contents

  • 1.0 The Emerging Market Structure
    • 1.1. The Changing Nature of Fixed Income Profitability
    • 1.2. Bonds: Solving the Time Mismatch
    • 1.3. Fixed Income Derivatives Moving to Electronic Platforms
  • 2.0 Bonds Electronic Trading
    • 2.1. Irreversible, but Messy, Electronification of Bonds Trading
    • 2.2. New Ways to Source Bonds Liquidity
    • 2.3. Best Execution Standards for Bonds Dealing
    • 2.4. Building the Technology for the New Bonds Dealing Paradigm
  • 3.0 Swaps Electronic Trading
    • 3.1. Making the Transition from the Principal to Agency Model
    • 3.2. SEFs are Now Live
    • 3.3. Low Levels of Readiness and Patchy Adoption of Swaps Electronic Trading
  • 4.0 Conclusions: Emerging Broker-dealer Business Models