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