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    GLOBAL MARKETS | 3 POINT PERSPECTIVE | INNOVATION EDGE

    Fixed income traders grow savvier with data, tech and electronic trading

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    Contributor: Matthew Coupe

    21 Jun 2022

    With electronic trading increasingly adopted in fixed income markets, our Market Structure Team surveyed asset managers, central banks and other institutions for insights on protocols, execution strategy, dealer selection and more. To keep pace with fast-changing technology, traders are integrating an increasing number of data streams, adding new layers of sophistication and complexity.

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    Contributor: Matthew Coupe

    21 Jun 2022

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    The global fixed income market totals about $130 trillion in outstanding debt. By comparison, global equities markets total about $42 trillion. Given the scale of the fixed income market, it is critical for traders to keep up with the latest global electronic trading trends driving execution in the market.

    Electronic trading in the world’s fixed income market continues to evolve with expanded platforms and protocols, yet despite growing availability and ongoing innovations, demand for transactions involving requests for quotes (RFQ) isn’t going away.

    “RFQ is the way the majority of trades are being placed,” said Matthew Coupe, Head of Cross Asset Market Structure for the Global Markets business at Barclays. “It’s starting to evolve, but RFQ is not dead. It’s still the answer to ensure you can access material liquidity.”

    To betted understand the latest trends, Coupe and the Market Structure team conducted a Global Client Fixed Income Markets Structure Survey, drawing over 260 responses from asset managers, central banks, banks, corporations, hedge funds, insurance companies and other institutions. This wide range of respondents represented institutions with fixed-income assets under management ranging from $10 billion to $200 billion.

    Respondents came from three global regions: the Americas with nearly half of the activity; Europe, the Middle East and Africa, also with close to half; and the Asia and Pacific region with the balance of the activity. They also represented rates & credit, for both cash & derivatives.

    The survey posed nearly 50 questions regarding trading tools and protocols; execution solutions and strategy; best execution and trader performance analysis; dealer selection; and regulatory change.

    Here are three of the survey’s key findings.

    1. The pace of electronic trading adoption holds steady

    Fixed income markets have enjoyed growth in electronic trading in recent years, but our most recent survey shows the pace of electronic trading adoption remained steady in 2021 compared to our survey of 2020 activity. The COVID-19 pandemic likely played a role.

    While the survey showed more people are adopting different trading methodologies, a significant number still use RFQ for 75% or more of their flow.

    RFQ remains prominent, particularly among Rates Cash and Credit Cash traders

    Q: What proportion of your competitive Electronic Rates trades (tickets) are RFQ?

    Related content

    Tracking the evolution of Fixed Income trading

    Over the past five years, fixed income markets have seen growth in electronic trading; a client survey suggests that growth has recently accelerated.

    Bar chart showing survey responses to the question "What proportion of your competitive Electronic Rates trades (tickets) are RFQ?"

    Source: Barclays 2022 Global Client Fixed Income Markets Structure Survey

    Additionally, most respondents said they expect their use of click-to-trade to remain about the same – another indication RFQ is still in demand.

    Click-to-trade use expected to stay roughly the same over the next twelve months

    Q: If you use Click-to-Trade, do you expect to change your use of it over the next 12 months?

    Bar chart showing survey responses to the question "If you use Click-to-Trade, do you expect to change your use of it over the next 12 months?"

    Source: Barclays 2022 Global Client Fixed Income Markets Structure Survey

    2. Traders are using integrated data to inform more than investment decisions

    Traders are investing in an increasing number of data sources and integrating these data streams in innovative ways. They are automating data on axes, dealer pricing, venue pricing, quantitative counterparty performance and more. They’re refining these tasks to not only analyse investment decisions, but understand market depth.

    Traders use automated, integrated data streams to inform a variety of decisions

    Q: What do you use the integrated data for?

    Bar chart depicting responses to the survey question "What do you use the integrated data for?"

    Source: Barclays 2022 Global Client Fixed Income Markets Structure Survey

    As the task of collecting, integrating and analysing so many data streams grows increasingly complex, more than half of respondents reported that they’ve either hired, or are looking to hire, data analysts. Core objectives for these analysts would include understanding market trends and feeding into the investment cycle, studying execution performance and training the next fixed income trader.

    3. Trading venue cost fragmentation has increased

    Survey respondents have reported an increase in price fragmentation year over year. This is defined as getting a different price from the same dealer when requested within a similar time frame.

    Traders increasingly observe pricing fragmentation

    Q: Have you observed pricing fragmentation on trading platforms? Definition - Pricing fragmentation would be defined as getting a different price from the same dealer when asked within a similar time period on two different platforms.

    Bar chart showing responses to the survey question "Have you observed pricing fragmentation on trading platforms?"

    Source: Barclays 2022 Global Client Fixed Income Markets Structure Survey

    On the rates side, over 20% of respondents said that they know platform-specific costs are factored into the prices they receive from at least some dealers. For credit, nearly 30% said they understand this.

    As trading and market data streams accelerate in speed and complexity, fixed income traders will increasingly rely on technology and staff to manage it – constantly evaluating performance and finding new ways to execute.

     

    1. Source: International Capital Market Association, https://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/Secondary-Markets/bond-market-size/

    2. Source: Statista, https://www.statista.com/statistics/242745/volume-of-global-equity-trading/

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    About the expert

    Matthew Coupe

    Global Head of Cross Asset Market Structure

    Matthew Coupe is Global Head of Cross Asset Market Structure for the Global Markets business at Barclays, based in London. He advises the Global Markets division on the future market structure, forms the advocacy position of the division on areas of market structure, and engages with politicians, trade associations, regulatory bodies and clients to make sure this is articulated effectively, as well as assists in building Barclays' commercial response to these changes. Further to this, he develops explanatory and thought leadership pieces around Market Structure for its clients. Matthew has recently been invited to join the Financial Conduct Authority’s secondary markets advisory committee and also co-chairs the Fix Trading Community for the EMEA region. He is a specialist in analyzing trends in trading market structure across all asset classes, whilst also looking at the impact to the trading eco-system when regulatory changes are proposed and implemented. Matthew graduated from De Montfort University with a BA(Hons) in Business Studies, majoring in Financial Statistics.

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