Has Bond E-Trading in Europe Hit the Ceiling – Greenwich Associates
February 18, 2016 \ 6 Comments
Full Article: Greenwich
Electronic trading in IG corporate bonds in Europe still dwarfs the US. Greenwich Associates data shows that in 2015 20% of client volume in the US was traded on screen compared to Europe’s 46%.
Before we get into the theories of why there is a difference between etrading adoption in Europe vs. the US, do yourself a favor, call a European sell side trader and ask them what they think of the current corporate bond trading environment. The war stories of how some buy side clients abuse the privileges of electronic execution and squeeze the sell side on execution fees are the stuff of legend and will have you laughing all day. You’re welcome. (I believe) The main driver of electronic trading growth in Europe is that buy side clients use electronic trading performance… Read more »
So, before you read my comments, read Jester’s – he’s spot on! Anyway, for what it’s worth, despite Bernie Sanders wishing that America was Denmark, it ain’t. I think we’re all in agreement that the Buy Side isn’t some homogenous group of companies in the US, the diversity of the Buy Side in Europe is markedly greater. E-trading in Europe in all fixed income assets has been more readily accepted and idly adopted than it is in the States. Although I highly respect the analysis, it seems to me that these issues must take into account market structures. E-for-the-sake-of E… Read more »
Jester brings out an interesting point and I will defer to him on the accuracy of his statements. Personally I have never got this impression. It always seemed to me that actually more european accounts would pounce on an error than give the dealer a heads up of their mistake (and Jester does talk about abuse). I think the development of e-trading may have to do more with the make up of market participants and how it has evolved over time. There always was, and continues to be, a larger number of meaningful dealers in Europe as many banks carve… Read more »
What I am trying to understand is, what is the value of a dealer paying a large fixed fee for RFQ flow that hundreds of firms (some quasi sell side) can see for a fraction of the cost? Paying a fixed fee for discretionary order flow has definite value worth paying for (can debate that value). Pay per trade would make more sense.
Will this move to all to all put a damper on RFQ growth in the US…or maybe this is a case of Sonny in a Bronx Tale, “Now youse can’t leave”.
The lead article speaks volumes about the way ALLQ is dominating in Europe and how differently electronic corporate bond trading is effectively marketed in each region. No one in the US has ever developed a platform that incentivizes a dealer to show inventory and pricing by connecting a client’s inquiry to a dealer’s information. Despite all of the new ideas and platforms out there, a simple targeted ALLQ-like system with spread based trading may do very well in the US.
A lot of great points raised by all and hopefully the below will add another slant. In the US there is TRACE (surprise right) and if you are a market maker you can make some pretty good assumptions on your market share in volume and trades ‘if’ a client wants to benchmark you (outside your primary biz…..) or you want to go and push the client to show you more flow. Now lets look at Europe which has…….. electronic trading across multiple platforms with no 1 spot to benchmark. So when you look at the numbers I would think a… Read more »
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BCG Report – Adapting to Digital Advances: Global Capital Markets 2015May 14, 2015