Digitization Has Changed EGB Trading Forever

Many of us have witnessed first-hand how new technologies have impacted financial markets considerably in recent years. Bond trading has been no exception. Machine learning and improvements in system connectivity are just an example of the technologies that could potentially impact the lifecycle of the bond market, from issuance through to trading and settlement.

As a result, several key trading themes have begun to emerge in bond markets.

Since the onset of the Covid-19 pandemic in March 2020, automation of European government bond (EGB) trading has accelerated on both the buy- and sell-side. It is now one of the main ways to trade. In October 2021 alone, some 60% of Tradeweb’s EGB tickets were fully automated, from our clients’ in-house order management systems (OMS) to execution (Source: Tradeweb).

At a recent AFME European Government Bond virtual conference, I highlighted how the debate on the buy-side used to be about whether to automate or not because of the small size of tickets. But now, with the integration of data, the debate is about how much you automate and how far you go.

Every month, we see deal volume getting larger as more traders become aware of the benefits of automation.

Our proprietary Automated Intelligent Execution (AiEX) system has been at the vanguard of trading innovation for more than a decade, playing a key role in Tradeweb’s drive to automate EGB trading. It allows clients to select from over 100 execution rules, covering order acceptance, liquidity providers, price competition and evaluation, and compliance. Such flexibility has been an important feature during market stress, as we saw at the height of the pandemic.

Investing in Data

With the electronification of bond trading continuing, the availability and quality of data has become one of the industry’s challenges. The lack of standardization on data has further complicated matters.

At Tradeweb, our clients on both the buy- and sell-side are demanding a wider spectrum of more detailed rates data to help them trade.

That’s why we’re investing in packaging and delivering the data in ways that are time- and cost-effective, to ensure that our clients can make the best trading decisions.

For example, we have a comprehensive suite of market pricing data services that provide actionable pre-and post-trade intelligence to inform trade execution strategies and enhance performance. These include our long-established Tradeweb Composite Price and IOSCO-compliant Tradeweb Global Reference Prices. In addition, our award-winning Transaction Cost Analysis allows our clients to evaluate and assess the strengths of their trading strategies in real-time.

Transparency in Electronic Markets

In addition to new innovations around pricing data and cost analysis, we’ve been working hard to increase transparency in EGB trading. We believe that greater transparency can help reduce risk and create more competitive and efficient markets.

Our Approved Publication Arrangement (APA) allows our participants to meet post-trade transparency requirements under MiFID II and supports over 100 buy- and sell-side firms, including 20 leading banks. It also provides reporting services to our multilateral trading facility (MTF), organised trading facility (OTF) and two external execution venues.

From request for market [RFM], we’re protecting clients from information leakage or market impact, and for dealers, we’re eliminating the ‘winner’s curse’. We’re definitely seeing an increase using in RFM in some of our products like swaps, but it’s also picking up in EGB.

How Fintechs Are Reshaping the Market

Digitalization has also seen many new players enter the market, which has increased competition and brought many improvements to the market. But while there is a considerable disruption in the market, it is important that, as an industry, we continue to collaborate with clients to ensure any new innovations benefit them.

That’s something we’ve been doing since inception.

We’ve been active in government bond trading since 1998, after we introduced our request-for-quote (RFQ) protocol for trading US Treasuries. Since then, we’ve expanded into other global government bond markets. In the UK and Europe, we work with 42 liquidity providers and offer trading across a range of fixed income products.

And we’re continuing to innovate. Our multi-asset package tool launched in 2019, for example, has built on our market-leading net present value (NPV) list trading tool to streamline interest rate swaps, inflation swaps and government bonds in a single package. This electronic solution for a traditionally voice-based service means our clients can access more competitive pricing, reduce manual booking errors and increase execution speed for multi-asset packages.

With more than 20 years’ leadership in electronic trading, we’re working with our clients to bring new products and solutions to market across a range of asset classes that make a real difference.



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