“The first revolution in electronic trading involved automating request for quotes and Open Trading. We are seeing the second revolution in electronic trading which has been enabled by the pre-trade data provided by CP+ and will lead to radical changes in market structure.”

Sobel and Quinn are helping to lead a midtown Manhattan financial technology startup that’s beginning to revolutionize how large banks, hedge funds and other debt buyers trade corporate bonds. Their six-year-old startup, Trumid, has built an online platform where traders around the world can convey bids and asks of U.S. dollar-denominated corporate bonds to the entire marketplace, and then negotiate matching trades in a few mouse clicks.

In the worst-case scenario, which the Fed terms “severely adverse,” a broad selloff in corporate bonds and leveraged loans hits an array of risky credit instruments and private-equity investments, sending shocks through a variety of markets. The biggest banks in America—a group that includes JPMorgan Chase & Co. and Goldman Sachs Group Inc.—must pass the tests to return money to shareholders.

Data must move cleanly and seamlessly between different systems to avoid lags and errors. Hence the rising interest in special platforms that can combine systems across trading, portfolio management and investment banking, reducing the risk of glitches by allowing data based on one standard to be used across a range of applications. Helping the banks do that are providers such as OpenFin, Glue42 and ChartIQ, each hoping to become the connective tissue of Wall Street.

“One of the consequences of the [central banks] easing again…is that they’re feeding the zombies, the walking-dead businesses that would be out of business by now if it wasn’t so cheap and easy to get credit,” economist Edward Yardeni, president of Yardeni Research, told Barron’s

For what it’s worth, big banks haven’t been willing to let the market they’ve long dominated slip away without a fight. Many of the biggest bond dealers have pushed for direct connectivity with clients, allowing them to circumvent the electronic marketplaces and block out other electronic market-makers all together. 

I would like to see more of a push towards the cleansing of that (corporate bond) data. And that could be by ranking the prices based on those that work, or something similar to Bloomberg’s Magenta Line pricing. Vendors could work better with the banks at tagging runs, levels or prices that are more likely to be tradable than not tradable. That’s where we spend a lot of time worrying.

In 2000, TowerGroup, a Massachusetts market research firm, estimates that currently 10% of all transactions in the fixed income market are executed electronically, compared to approximately 25% in the equity market TowerGroup also estimates that the proportion of fixed income securities traded electronically will rise to almost 60% by 2004. 

Bond trading is ripe with AI capabilities, making way for accuracy. Bond traders looking to adopt AI platforms must first recruit, train, and retain the appropriate human talent to handle the transition and deployment of this new technology. 

El-Erian and others worry that an artificial environment of near-free money is masking serious underlying ailments and may be storing up problems for a future reckoning. This era of perpetually cheap money has kept alive some debt-ridden “zombie” companies that would have failed if rates were at traditional levels; widened the wealth gap between rich and poor; and distorted financial decisions, he said.