May 2008
e-trading: New markets bolster IDBs
Can the rapid growth of e-trading in recent years continue?
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But LiquidityHub shuts down
A mere nine months since launch, LiquidityHub, a multi-dealer platform, has ceased operations. Being less a trading platform than a sophisticated messaging system, LiquidityHub was a dealer-led response to shift interest rate derivatives from voice to electronic trading. It was backed by 16 banks, and was aspiring to move into government bonds after interest rate swaps. In a statement, LiquidityHub said that the decision came because of "recent market conditions, which have called into question the current scalability of the LiquidityHub model". |
Despite the liquidity crunch, electronic trading of fixed-income securities has held up, relatively, in recent months say traders. Excluding March, which was highly volatile, volumes have been strong this year. This is the continuation of a long trend – e-trading has made huge strides in recent years. In the US, 57% of fixed-income trading is now electronic, according to a report from Celent, a research and advisory firm for financial institutions. That figure is the result of a compound annual growth rate of 17% since 2003, and is expected to reach 62% by 2010. The development of e-trading has advanced the most in the more liquid, standardized products, namely government bonds. Eighty percent of US treasuries are now traded electronically, and that’s predicted to reach 84% by 2010.
In the inter-dealer market, where global revenues reached $7 billion in 2007, e-trading is expected to account for 35% of revenues by 2010 (from 6% in 2000). Although the advantages associated with voice broking, especially at the larger end of the deal spectrum, will somewhat limit further expansion of e-trading among inter-dealer brokers, a functioning and well-supported electronic platform is now a vital part of an IDB’s composition. "If you look at the current market environment, the value that e-trading brings in terms of depth, ease of access and speed of execution is obvious," says John Edwards, director of fixed-income sales at Icap. "Particularly since the credit crisis, it is very important to have access to these platforms."
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