Multi-dealer platforms increasingly costly, FICC traders agree

Coalition Greenwich report found that buy- and sell-side FICC traders view bilateral trading as a solution to the rising costs of multi-dealer platforms.

Traders in the fixed income, currencies and commodities (FICC) market are increasingly turning to bilateral trading to avoid the rising costs of executing on multi-dealer platforms, Coalition Greenwich research has found.

The report, which surveyed FICC market participants across the buy- and sell-side in Europe Asia and North America, found that market structure trends were increasing the costs of executing FICC products on multi-dealer platforms. 

Participants cited that electronification had increased costs across brokerage fees, data sales and information leakage and “unfavourable” hedging outcomes. 

“Over the last few years, the dominant narrative has been that more transparency is a good thing, hence the focus on getting more execution on venues,” said Tom Jacques, senior research manager at Coalition Greenwich. 

“This is largely true, but while transparency has increased, so have the fees earned by the intermediaries and the overall costs incurred by liquidity providers, which ultimately negatively impacts the end investor.”

The report added that the challenges around costs and information leakage were encouraging liquidity providers and buy-side firms to consider alternative trading methods to current request for quote (RFQ) trading on third-party platforms. 

In particular, traders are increasingly engaging with bilateral trading, directly connecting with the execution and order management systems of liquidity takers.

“Just as innovation paved the way for today’s multi-dealer platforms, technology is now creating new ways for liquidity providers and the buy-side to interact directly,” Subodh Karnik, head of client intelligence marketing at Coalition Greenwich, commented.