Favorite Few Rule E-Bond Trading

Seventy-five electronic-trading platforms are competing in the fixed-income market, but a few core systems have most of the volume.

A total of 77 electronic-trading platforms operating in the United States and Europe are vying for the industry's business in fixed-income securities, according to The Bond Market Association's (TBMA) 2003 Review of Electronic Transaction Systems.

Electronic-trading platforms serving fixed-income markets have stopped proliferating and have entered a phase of maturation and consolidation. While a core group of systems handling most of the volume has emerged, weaker platforms are disappearing, the survey finds.

"A small group of platforms are responsible for the lion's share of electronic-transactions volume," says Michael Decker, TBMA's senior vice president, research and policy analysis who spearheaded the project. With online-bond trading becoming "virtually commonplace," TBMA estimates that volumes have grown an average of 70 percent, with individual rates ranging from 20 to 140 percent.

Based on talking with platform vendors, trading volume is concentrated in a small number of players, which means a lot of players are doing a relatively small amount of the volume, says Decker.

"TradeWeb and MarketAxess are great examples of multi-dealer systems that have generated a lot of volume and a lot of interest," says Decker, referring to the category of systems that facilitate trading between dealers and their institutional customers.

Others that have established themselves as core systems are Bond Desk and TheMuniCenter. He also singled out Grant Street Group, parent of MuniAuction, an auction-based system that has developed a niche in new bond issues for municipalities and government-sponsored entities such as Freddie Mac.

Platform vendors fueled adoption by enhancing and adding functionality, such as connectivity for automated-trade processing; pre-trade services such as research, analytics and calculation software and services related to syndicated underwriting of new issues.

"If you access research off the same screen that you are looking at quotes (on) or include a bond calculator in the same screen that you are looking at spread trades, that makes it easier for users to trade on the system without having to switch applications," says Decker.

However, there has been almost no growth in the number of new fixed-income-transaction systems entering the market, says Decker.

Seven platforms have dropped out since last year's survey, presumably because of lack of liquidity. They are: eBond Trade, Core Deal, MTS, Direct Issue Limited, Lexc.com, Bond Globe and the Bloomberg Spread Execution System. BrokerTec Futures Exchange plans to cease trading at the end of this month, but this was not on TBMA's list this year. Meanwhile, only three trading systems are new to the list: Bondscape, Treasury Dealer and MTS Austrian Market - All are related to trading European bonds.

Of the 77 names on this year's list, 21 are single-dealer systems and 21 are inter-dealer systems, while 12 are auction systems, 12 are cross-matching systems and 16 are multi-dealer systems. Single-dealer systems include Credit Suisse First Boston, Goldman, Sachs & Co., Lehman Live and J.P. Morgan eXpress, among others.

"We don't expect there to be much shake out in that sector because the large firms will always have offerings in single-dealer platforms," says Decker. "Those systems are viable and important in terms of how people use those to trade and check prices and manage their accounts with particular dealers," he adds.

Inter-dealer platforms also execute a lot of volume, says Decker, who cites outfits like eSpeed and ICAP. "There's every reason to believe those platforms will maintain current levels and grow with respect to spread products and credit products," he says. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio