US portfolio trading demand continues to rise, report finds 

Research has found that portfolio trading volumes in the US fixed income markets increased 159% in the last two years.

Portfolio trading has continued to gain significant traction in the US fixed income markets in the last two years, a Coalition Greenwich report has found.

According to the report, portfolio trading volumes have risen 159% in the last two years as traders sought better efficiency and price improvement, with 72% of portfolio trades executed last year achieving price improvement over the prevailing mid-price.

“Currently, portfolio trading accounts for about 3-5% of overall US fixed income trading volume,” said Kevin McPartland, head of research in the Coalition Greenwich market structure and technology group. 

“However, given the rapid improvement in technology, tools and access, we believe portfolio trading could grow to 8-10% of the market over time, depending on market volatility and other macro conditions.” 

Portfolio trading allows traders to execute a basket of stocks in one single transaction, minimising costs and allowing traders to bundle difficult to trade stocks in with ones that are easier to trade. 

It has gained popularity in recent years, alongside other forms of electronic trading that differ from request for quote (RFQ) protocols on multi-dealer platforms, as participants look to minimise their market impact and avoid information leakage.

Research by Coalition Greenwich last month found that traders in fixed income, currency and commodities (FICC) have been increasingly turning to bilateral forms of trading to avoid the costs of multi-dealer platforms. 

Several fixed income platform providers have sought to keep up with the increasing demand by launching or improving their current portfolio trading offerings. Most recent was MarketAxess which expanded its portfolio trading functionalities last month to support multi-currency and multi-list functionality.

Coalition Greenwich’s most recent report, which surveyed 157 global fixed income investors across North America and EMEA, highlighted, however, that regulatory hurdles could stand in the way of portfolio trading as regulators assess how to ensure best execution on portfolio trades.