The Future of Electronic Fixed Income Trading-- Cash and Derivatives: Regulation and Dealer Economics Spur Innovation in Dealer-to-Client Markets
The economics of fixed income dealing operations is evolving due to market structure changes, emerging regulations, and disruptive technologies already in the market and on the horizon. As new regulations continue to put pressure on revenue models, firms are investing in innovation in areas such as trading models, price discovery, and trading technology.
In the report, The Future of Electronic Fixed Income Trading--Cash and Derivatives: Regulation and Dealer Economics Spur Innovation in Dealer-to-Client Markets, Celent dissects trends and developments in the fixed income trading value chain and explores how regulation and revenue pressures are fostering innovative designs in the marketplace.
The fixed income trading value chain is evolving more significantly than any other across the range of asset classes. Whereas FX and equities underwent significant transformations toward electronic platforms and technology supporting trading workflow years or even decades ago, fixed income is only just catching up.
Some of this evolution is industry-led due to declining profits and a desire to improve efficiency by leveraging technology, but most of it is due to factors outside the industry’s control, as a myriad of national and multinational regulatory efforts strain business models, force capital optimization, and mandate certain clearing models. Major initiatives include Basel III, the Volcker rule, EMIR, Dodd-Frank and MiFID2 in Europe.
“The net result of these regulatory initiatives will severely impact dealer models, putting pressure on revenues, and thus liquidity in secondary markets,” says Josephine De Chazournes, Senior Analyst with Celent’s Securities & Investments Group and coauthor of the report.
“Due to the impact on liquidity and dealer models, a number of firms are investing in innovative business designs,” adds David Easthope, Senior Analyst with Celent’s Securities & Investments Group and coauthor of the report. “Innovation in cash markets is occurring in areas such as trading models, price discovery, and trading technology.”
This report examines the evolution of fixed income, developments in the value chain, and the evolution of liquidity and trading. Celent identifies innovative new business designs in fixed income trading models, price discovery and trading technology. The report also provides market scenarios for different instrument classes in the US and Europe.
This 36-page report contains 5 figures.
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 operating unit of Marsh & McLennan Companies [NYSE: MMC].
Tel: +1 212 345 1366
Tel: +44 (0)782 448 3336
Tel.: +81 3 3500 3023
Table of Contents
The Great Evolution of Fixed Income
Innovation Is Being Spurred
Predicted Trading Models
Scope of Coverage of This Report
The Idiosyncrasies of Fixed Income
Purpose of This Report
The Evolution of the Fixed Income Trading Value Chain
Resulting Technology Needs
The Evolution of Fixed Income Trading and Liquidity
The Issue of Capital
The Decline of the Fixed Income Revenue Pool
Dealers Transforming Operations
Buy Side Under Pressure
The Evolution of Electric Trading in Fixed Income
Algorithmic Trading in Fixed Income
Innovation Business Designs in Fixed Income Trading
The Innovation Cycle
Innovation Trading Models
Innovation Price Discovery Models
Innovation Trading Technology
Market Scenarios Based on Innovations
Leveraging Celent’s Expertise
Support for Financial Institutions
Support for Vendors
Related Celent Research