Europe’s corporate bond markets are the most electronic in the world

Last year, 62% of European investment-grade corporate bond trading volume was executed electronically, as with 49% of notional high-yield volume; compared to 40% and 31% in the US, respectively.

New research from Coalition Greenwich has found that 62% of European investment-grade corporate bond trading volume was executed electronically last year – making Europe the most electronic bond markets globally.

Nearly half of notional high-yield volume in Europe (49%) was also executed electronically in 2022.

These figures are noticeably higher when compared to US markets, which saw 40% of investment-grade corporate bond trading volume and 31% of high-yield volume traded electronically last year.

“In both the EU and the UK, we expect trading volumes to continue migrating to new, electronic trading protocols due to a combination of innovation and regulation,” said Kevin McPartland, head of research at Coalition Greenwich Market Structure and Technology.

Previous research from Coalition Greenwhich found that the majority of electronic corporate bond volume in Europe was executed via tradition request for quote (RFQ) protocol. However, auto-execution (AutoEx) is expected to see increased use in the future, with two-thirds of buy-side respondents (66%) stating that they expect to use AutoEx more in the next year.

Major trading venues and execution management system (EMS) providers offer the buy-side the ability to set parameters which when met, will have trades automatically sent out via RFQ. This automation is expected to serve as a key driver more increased e-trading overall.

Elsewhere, 51% of respondents stated that they expect to route more orders into all-to-all networks.

“Going forward, electronic trading expansion in Europe is less about increasing the total volume traded on-screen and much more about adding efficiency to the trading process via emerging (and emerged) trading protocols common elsewhere in the world,” McPartland said in his report.

“This includes RFQ automation, which has the buy-side setting parameters and watching easier orders execute with zero human intervention.”

Increased adoption of EMSs by corporate bond traders is also expected to help increase electronic trading, namely because of their ability to route trades based on factors including available liquidity and venue fees.

Coalition Greenwich also acknowledged the role that new regulation will play in making European markets more conducive to electronic trading.

“The potential for increased trading-venue registration requirements and additional trade reporting in the EU and UK may prove challenging for the market to implement, but both ideas ultimately support the growth of electronic trading,” added McPartland.

“Buy-side traders may find it easier to connect to trading venues that all operate under a standard framework. In general, the more data that is available, the easier it is for investors and traders to enter and stay in the market in search of alpha.”