Trading platforms in the fixed income market will continue to struggle to gain a foothold in the market, according a whitepaper from BNY Mellon.
BNY Mellon said the stringent requirements of Basel III and MiFID II - along with the transitional phase which is moving away from a relationship driven and towards greater use of electronic trading, are creating challenges for established platform.
Basel III’s long timeframe (with final implementation due in 2019) coupled with the differing pace that regulators are implementing the new requirements has worsened conditions in corporate bond markets and reduced liquidity.
Forthcoming MiFID II regulations cover a wide range of pre- and post-trade transparency issues for fixed income instruments.
The paper also refers to research carried out by consultancy Greyspark showing that over 30 trading platforms attempting to break into the market ranging from new entrants to exiting equity participants.
Stu Taylor. CEO of fixed income specialist Algomi, said that any new platform trying to get a foothold would struggle due to the established nature of platforms currently in use.
“For a new platform coming in, it’s incredibly hard to gain market share from the current platforms,” said Taylor.
“The current platforms are established with good amounts of functionality, have all the clients and a big portion of the bank community.”
Taylor added that any new platforms must prove that they have an ‘edge’ to gain a foothold in the market.
“Innovation in this part of the market is very hard because there are only so many ways that you can perform functions.”
“So the question everybody will be asking of these platforms is ‘what is their difference’ and it is becoming incredibly hard to show a differentiator. “
Further research carried out by an Investit Commission Analysis Service 2015 report revealed 90% of firms surveyed expect to see a ‘significant’ change in fixed income markets in the next two years.