Bond trading must adapt to survive, says ICMA

Report exploring the future of fixed income trading claims bond trading must adapt, through technology, if it is to survive.

A new report authored by the International Capital Market Association (ICMA) states bond trading must adapt and innovate in order to survive.

ICMA’s report explores the possible ‘future of electronic trading in European cash bond markets’, and it found the bond trading market faces a difficult time as participants attempt to implement new electronic trading techniques.

The search for liquidity and reduction in fixed income roles has led to the electronification of bond trading.

However, ICMA says before this is fully realised, “a journey of natural selection has to be undertaken.”

ICMA explains the bond trading eco-system “will see new (and possibly disruptive) entrants, innovative incumbents and adaptive trading protocols and venues emerge.”

MiFID II regulations are acting as a catalyst to the evolution of fixed income markets, the paper explains, but as technology is implemented across the market, fixed income trading will see a “survival of the fittest” scenario.

However, the report explains how “this transformative pathway will be a painful one as regulation and technology are already proving disruptive influences on the established market structure”. 

ICMA writes: “what is certain, is that bond trading must adapt and innovate in order to endure.”

Fixed income business units globally have dominated headlines in recent weeks, following a mass drop in revenues for investment banks in first quarter results.

Goldman Sachs, for example, saw a 50% drop in fixed income, currency and commodities (FICC) revenues in Q1 this year compared to the same period last year.

As well as falling revenues, many businesses have streamlined their fixed income units as part of cost-cutting regimes.