Electronic Fixed Income Trading: On the Retail Side of the Street

November 21, 2003

Abstract

Boston, MA, USA November 21, 2003

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Celent projects a gradual growth of online retail fixed income trading over the next few years, accounting for approximately 13 percent of all retail fixed income trading in the U.S. by end of 2007.

After long being overshadowed by the market for equities, the retail fixed income market is quickly growing in importance in U.S. retail financial services. In a new report, " ," Celent examines the state of the retail fixed income market and profiles the leading retail fixed income service providers in the U.S. The report also provides case studies of Charles Schwab and Harrisdirect.

Fixed income products have often been viewed as ideal instruments for the institutional trading community. Typical investors in the fixed income market include pension funds, mutual funds, insurance companies, and governments. "However, with increased public education and the emergence of retail-focused electronic trading platforms, retail investors are adding such products to their portfolios at a steady pace," says

Adam Josephson, co-author of the report.

Total retail ownership of the U.S. fixed income market has increased from slightly over US$2 trillion in 1997 to well over US$3 trillion by the end of 2002, exhibiting a compound annual growth rate of 9 percent. However, an increase in retail ownership in and of itself does not translate into increased electronic trading activity by retail investors. "The transformation of the retail fixed income market from a buy-and-hold environment to active trading will certainly not happen instantly," says

Sang Lee, co-author of the report. Lee adds, "This will be an evolutionary process, creating liquidity where it did not exist before."

As the retail fixed income market evolves to provide increased price transparency and declining transaction costs, Celent expects to see more retail investors trading various fixed income products in the near future, especially through the electronic medium. In the short term, however, the onus will be on the leading retail fixed income service providers to increase available fixed income inventory for the retail brokers who are best positioned to spur retail consumption of bonds.

A is available online.

of Celent Communications' Retail Securities & Investments research service can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.

        

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Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

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Michele Pace
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Chris Williams
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Table of Contents

 

Boston, MA, USA November 21, 2003

Electronic Fixed Income Trading

Return to report Abstract

 

EXECUTIVE SUMMARY 3
INTRODUCTION 4
MARKET OVERVIEW 6
  Fixed Income Market in the U.S. 6
  Fixed Income for Retail Investors 9
  Technology for Retail Fixed Income 13
  Retail Penetration 14
VENDOR PLATFORMS 19
  BondDesk 19
  ValuBond 21
FINANCIAL INSTITUTIONS 24
  Charles Schwab 24
  Harrisdirect 25
LOOKING FORWARD 26
OBJECTIVITY & METHODOLOGY 27

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