As trading volumes in fixed-income instruments continue to grow, so does the “electronification” of the sector. But adoption is relatively patchy, according to new research from TowerGroup.
The research finds that although electronification has not been adopted as readily in fixed-income as in the equity markets, e-trading is rapidly becoming a mainstay for certain product types - and soon, any new product development in the securities markets will need to be equipped for electronic execution and processing to be widely accepted.
The process by which fixed-income products begin to trade electronically is evolutionary, and this cycle is unlikely to change any time soon, says Tower Group. While inventory and liquidity are the primary drivers for fixed-income products going electronic, market participants play a critical role creating the ground swell needed to encourage widespread adoption.
"Some firms have remained hesitant to embrace electronification for fear of losing control over lucrative fixed-income franchises and their 'high touch' approach to the market," says Tom Price, senior analyst in the Securities & Capital Markets practice at TowerGroup and author of the research. "Yet ultimately the benefits of automation are too potent to ignore, given that it provides for greater control of risk and facilitates best execution - two factors of paramount importance to regulators."