December 18, 2015

The evolution of fixed income trading

New Pershing white paper discusses the challenges and opportunities for new platforms


The fixed income business is in a state of transition with existing electronic venues and a plethora of new platforms trying to get a foothold. But moving a traditionally relationship-driven and voice-executed market to a new forum is no easy task.

Issuance is soaring but liquidity is withering as banks withdraw due to Basel III’s stringent capital adequacy ratios. New platforms not only have to offer the right functionality to suit different products but also ensure robust pre and post trade systems are in place to meet impending regulations such as MiFID II, explains a new paper from Pershing Ltd. titled European Fixed Income–Advent of the Platforms.

Scott Coey, Head of Broker-Dealer Services EMEA at BNY Mellon, said: “The breadth and complexity of fixed income as an asset class opens the field to a greater variety of models. With competition from new entrants, the large players are reconfiguring their models. Smaller players with niche areas of expertise will continue to carve out a role and fill a gap for asset managers who feel they are being neglected by the bigger banks.”

There are also opportunities for new trading platforms. The initial interest followed by subsequent shortcomings of recent bond platform start-ups has done much to highlight the pitfalls of creating new trading venues in the $8 trillion market. However, these early experiences were essential in navigating the path of a successful evolution. While there is room for competing models, the ingredients of success include innovation and a strong, diversified product offering, backed-up by solid risk management processes.