According to a new report released by Greenwich Associates, US corporate bond dealers will have to be encouraged to trade as they are concerned about whether new electronic platforms pose a threat or not.
Greenwich Associates surveyed top US dealers of investment-grade bonds which revealed that 70% have executed a trade using the new electronic corporate bond trading offerings and two thirds of respondents plan to use one in the future. The report “US Corporate Bonds: Investors Need Dealers, Dealers Need Incentives” actually highlights that perhaps dealers are accepting new technology rather than disregarding electronic systems and continuing to use traditional platforms.
The report explains how most dealers use a Request for Quote trading method but 10% have placed a limit order in an order book style market. Order book trading, however, will ensure that more dealers are involved but this could change if anonymous corporate bond trading becomes popular.
Head of research for market structure and technology at Greenwich Associates, Kevin McPartland, says that there is a need for different trading styles but only if they operate efficiently. “The range of platforms available supports our hypothesis: the market doesn’t need dozens of platforms, but it does need choices to meet the diverse trading styles and strategies dealers and investors present,” McPartland says.
McPartland comments further to explain that dealers want recognition for how well their trades have been executed. Electronic trading is seen as a threat by large dealers because they would be encouraged to change the way they operate.
On the other hand, e-trading presents an opportunity to small dealers as new clients can be acquired through aggressive pricing.