Bond Investors Get New Tools to Speed Up Trading
Electronic bond-trading platforms are racing to expand their offerings as traders demand greater integration of the technology that is transforming how they buy and sell holdings
Electronic bond-trading platforms are racing to expand their offerings as traders demand greater integration of the technology that is transforming how they buy and sell holdings.
Trade-data aggregator Algomi ALMO -1.79% Ltd. announced Tuesday a feature allowing clients to execute trades directly on platforms Liquidnet Inc. and Trumid Financial LLC through its own interface. With the move, Algomi is pushing to be first to market with a bond execution-management system, or EMS, akin to those that have existed for more than a decade in equity markets.
“The resounding complaint we hear from fixed-income investors is that there is no fixed-income EMS,” said Algomi Chief Executive Scott Eaton.
About 60% of U.S. bond-trading desk heads say that currently offered EMSs are fit for equity trading but not well suited to fixed-income markets, according to a study conducted this year by conference operator Worldwide Business Research.
Aggregating bid and offer prices is crucial in debt markets because bonds still trade over the counter, unlike stocks, which trade on exchanges where price information is readily available. Previously, investors using Algomi to determine the best trade price needed to switch to software from Liquidnet and Trumid to execute, dragging out the trading process.
Speeding up the logistics through electronic integration will give human traders more time to develop trading ideas, said Liquidnet fixed-income head Constantinos Antoniades.
MarketAxess , MKTX +1.88% the dominant electronic bond-trading venue, also is adding a new tool that will allow investment firms to make so-called portfolio trades—large bundles of bonds often included in exchange-traded funds—through its platform.
The new feature, which was announced Wednesday, is a response to increased portfolio trading over the past year by Wall Street banks and algorithmic trading firms such as Jane Street Capital LLC, said MarketAxess Chief Operating Officer Chris Concannon.
Banks like the technique because it allows them to trade in large sizes, which also means collecting large fees, while limiting their exposure to individual bonds, Mr. Concannon said. Fund managers use the tool to quickly change the characteristics of their portfolios like duration, sector exposure and credit risk, he said.
But compiling the bonds included in the trades, negotiating a price, and executing the entire portfolio can be cumbersome for investors, in part because there isn’t a uniformly accepted protocol among portfolio market makers.
MarketAxess is hoping to smooth the process for asset managers by helping them market portfolios to banks and algorithmic traders, price the deals accurately and handle post-trade logistics, all through its trading platform. The new tool is expected to launch in the fall, Mr. Concannon said.