Increased adoption of EMSs in fixed income expected over the next 12 months despite the pain points associated with new trading technology

“Factors including cost and quantifiable return on investment (ROI) still hinder traders who are considering the adoption of new trading technology,” however sentiment towards e-trading is increasingly positive, says Coalition Greenwich.

When it comes to risk transfer in fixed income trading, voice and chat continue to dominate, however results from Coalition Greenwich’s fixed income trading technology report, ‘on the verge of change’ confirm that the adoption of electronic means of trading is on the rise. 

This is reportedly down to two main factors: the readiness of the asset class, and improved attitudes towards electronic trading.

The report confirmed that this year has shown clear evidence of the trend, with e-trading seeing a surge in Q1 wherein 44% and 29% of investment-grade bonds and high-yield bonds respectively were traded using electronic means. 

“The journey to more electronification is very different across participants, with most embracing at least some e-trading in their workflows today,” said Coalition Greenwich. 

However, while technological adoption continues to rise – across all asset classes – fixed income traders are encountering increasing pain points associated with technological evolution in their bid for more efficient ways to trade.

Common issues such as running multiple applications simultaneously and a lack of interoperability when it comes to analysing data from several sources remain prevalent. 

In addition, “factors including cost and quantifiable return on investment (ROI) still hinder traders who are considering the adoption of new trading technology,” said Coalition Greenwich.

Read more – The TRADE predictions series 2024: Fixed income, innovation and electronification 

Notably, respondents confirmed that core execution management system (EMS) functionalities continue to be a key focus for fixed income traders, as they seek to adopt more advanced trading techniques.

Currently, only a small percentage of fixed-income investors use EMS to transact fixed-income securities, however Coalition Greenwich’s latest report confirmed that sentiment is swaying towards more increased adoption and use in the year to come to combat these points. 

These findings mirror those found in The TRADE’s own EMS survey findings from its 2023 edition, which has been seeing an increasing numbers of responses from fixed income traders in recent years.

Delving into this deeper, the report asserted that “desired functionality within an EMS serves as a good proxy for how the buy-side would like their trading workflow to improve”. 

Specifically, 63% of fixed income traders highlighted access to liquidity from a single blotter as the most attractive functionality, closely followed by 51% of respondents confirming that aggregation of market data from multiple sources/formats was the number one desire.

This is closely linked to the ever-present conversations around fragmentation, wherein a single blotter can serve to simplify impacts on trading workflow. In addition, market data aggregation – which is centralised and standardised with EMS technology – can, and does, ease the operational side of trading.

“Buy-side users of EMS technology are huge advocates for that approach to trading and encourage peers at other firms to take the plunge. For those that use them, EMSs serve as a hub for the buy-side, the trading venues and their dealer counterparties, allowing traders to discover and negotiate prices in an efficient manner without turning to different platforms and systems,” concluded Coalition Greenwich.

The ‘on the verge of change’ report includes responses from 70 US buy-side professionals from front-office fixed-income roles.