The TRADE predictions series 2022: fixed income electronification

Looking ahead to 2022, there are two main themes that will enhance bond trading. First is in primary markets, which until recently largely relied on legacy systems and manual processes. This year brought advancement in the electronification of primary markets with the introduction of new technology, allowing firms to trade new issues electronically and simplifying both workflows and the dissemination of new issue data. This is the first step in achieving what the market desires, a complete, end-to-end solution between asset managers, their order management system (OMS), and syndicate banks, from issuance to pricing and final allocation. 

In secondary markets, where electronification is already well established, trading options will continue to expand, giving traders more choice to execute the right trade at the right time. This will be driven by greater control of data and information so that both the buy side and the sell side can route their liquidity to the most suitable protocol. The combination of ongoing electronic improvements across primary markets and the flexibility to execute a variety of trade types, whether influenced by larger size, complexity, or market conditions, will have a notable impact on how fixed income traders operate.

The industry demonstrated it could react flexibly to changes dictated by the pandemic over the last 18 months, and this has led to an atmosphere of possibility in fixed-income trading.  Market participants have shown they are willing to adapt to new ways of working and will demand more capabilities for finding and executing liquidity in 2022.

Certainly, a change in outlook of what is possible in the fixed income markets as far as automation is concerned means that auto-execution is becoming more broadly accepted.  However, the reality is that it has been around in specific regional markets for some time with demonstrable success in corporate bonds. There are banks out there who have been successfully doing auto-execution across multiple trading platforms for over a decade, and it will be great to see this come further into the mainstream in 2022.

The pandemic accelerated the adoption of electronic trading, and with that, there has been a greater appetite for innovation. Firms are looking for more ways to access liquidity, whether it’s through new trading protocols or expanded integration with solutions providers like Bloomberg. Looking ahead, there will continue to be an increased demand for solutions that effectively use data to help inform trading decisions, and to overlay that intelligence across electronification and automation. An example of that would be our launch of Portfolio Trading Basket Builder, incorporating reference to Bloomberg’s Evaluated Pricing Service (BVAL), thereby enhancing our offering with the data and analytics Bloomberg is known for.

Portfolio trading will continue to evolve as we see increased consolidation between list trading and portfolio trading as more market participants look at gaining exposure to exchange traded funds (ETFs) and the underlying credit within those securities. This is an exciting time for electronic trading as there continues to be a significant opportunity to innovate. Next year, market participants can expect to see new products, protocols and features that incorporate data and analytics across workflows, and deliver greater pre-trade, at-trade and post-trade efficiency.

– Derek Kleinbauer, global head of fixed income and equity e-trading at Bloomberg

Continuing market pressures – from low interest rates, rising fixed costs, increased regulatory demands or new competitors – means that fixed income, commodity and currency traders will increasingly seek opportunities to achieve more, in a more efficient way, with the same resources. 

This will lead to many considering new trading systems and platforms, especially those that can handle the front to back trade in a thorough, yet uncomplicated manner. Speed to market will remain increasingly critical. We’ll also see more new regulations with rather short implementation times, or new requirements deadlines stacking on top of each other. Due to Brexit, there will be additional reporting efforts since UK and EU reporting requirements are no longer aligned, for example EU’s Sustainable Finance Disclosure Regulation (SFDR) vs UK’s Settlement Discipline Regime (SDR). This will underline the importance of remaining flexible and well supported by technology that can scale. 

What does this mean for 2022? To keep focused on client relationships and revenue generation we expect to see a lot more emphasis on the right technology for the right job, that can be scaled. Investors will need to keep focused on their day jobs, while technology plays a greater role in supporting their needs.