Next for Electronic Trading: Two Big Trends, One Shared Path
Chairman of the Board, Tradeweb Markets
While electronic trading has been growing steadily since the late 1990s, for many products it has remained a stubbornly small percentage of overall trading volume. In recent years that has begun to change, however, with more trades taking place electronically and more workflow around those trades becoming digitized. As we entered into 2020, which for most probably feels like a distant memory, it was clear that there was a secular trend underway towards more electronic markets and that trend was broadly accelerating.
Skip ahead to March 2020, when we saw a surge in electronic trading as markets endured both intense volatility and unprecedented volumes. At the same time our client network and our own employees shifted into remote work without missing a beat, replacing the trading desk with the home office or even the kitchen table.
Tradeweb’s average daily volume for the month of March was $1 trillion notional, which still seems incredible to me. To put that number in perspective, when we started Tradeweb in the late 1990s it took two years to reach $1 trillion in cumulative trading volume.
While our trading volumes have normalized since March, the secular shift towards more electronic trading has continued and in a more broad-based fashion. Traders are utilizing trading technology more heavily at home than they might have otherwise: trying out new protocols and tools like portfolio trading and net-spotting; consuming more data; and seeking any opportunity to be as efficient and networked as possible. From Tradeweb’s earliest days, we’ve always believed that a great idea or cool technology can only have an impact if it involves changing behaviors. Remote work has been a powerful catalyst for such behavioral change – but it is not the only one.
More government and corporate spending over the past two decades have likewise fueled massive debt issuance. Like the march towards electronic trading, this trend was also well underway long before March 2020 when issuance began to soar as governments and companies responded to the COVID-19 global pandemic. Now with outstanding debt at unprecedented levels, the need for reliable, resilient and efficient tools and processes to support secondary trading has never been greater. Traders are looking for more ways to move risk, utilizing a broader range of tools and protocols.
So, we have a trend-on-top-of-a-trend in electronic trading. We also have a trend-on-top-of-a-trend in global debt issuance. These parallel trends converged in March, setting up what I think will be a transformative era for electronic markets. The volume of debt outstanding is unlikely to shrink any time soon and it’s more likely the opposite will occur, so secondary trading must be as reliable and efficient as possible. For Tradeweb, that creates a remarkable opportunity because making markets more efficient is exactly what we do.
To better understand how this odd couple of accelerated trends has already begun to reshape the next generation of trading, it is important to understand how we got here. Beginning with a piece we published today on U.S. treasuries, Tradeweb is examining worldwide issuance trends and what they mean for how those markets trade.
Markets were already primed for more electronification at the start of 2020, and the combination of remote work and massive debt issuance will further accelerate that evolution. In a year that could use a few silver linings, these two will make our list.
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