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Innovation in Focus: Electronic Trading Platforms in US Corporate Bonds

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21 March 2013
David Easthope

Electronic Order Books Herald a New Market Structure

Abstract

With all evidence pointing to smaller trade sizes in US corporates, institutional traders are looking to complement their workflow and liquidity search with electronic order books (EOBs). The EOBs have tended to focus on the retail market, but they are highly advanced and likely to see increased adoption by the institutional buy side, which has to look elsewhere as dealers cut back on inventory holding.

In Innovation In Focus: Electronic Trading Platforms in US Corporate Bonds: Electronic Order Books Herald A New Market Structure, Celent dissects the innovation occurring in the US corporate bond electronic trading and associated vendor ecosystem. While there is a bit of “me too” occurring in the market for electronic trading as well, particularly among dealers, there are also some exciting new platforms in the multidealer and ATS molds with unique value propositions.

While there is immediate potential for uptake at new EOBs as they complement buy side trader workflow, not all will survive. Some will remain highly focused on one segment of the market, while others will focus on a distinct set of clients. Even among the EOBs, the market is far from homogenous. The institutional and retail markets will increasingly intersect as trade sizes fall, and we believe traders will direct an increasingly larger flow of liquidity to the EOBs.

“With more education of the available options and specialized vendors providing connectivity, aggregation, and smart order routing, adoption will accelerate,” says David Easthope, Research Director with Celent’s Securities & Investments Group and author of the report. “Whether the EOBs move from complementary to the de facto market will depend ultimately on whether a best execution culture for US corporates arrives on the buy side, and whether the regulators decide to put pressure in this direction.”

This 18-page report contains one figure and three tables.

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