It’s easily done – a typing error slips through unobserved on your computer as you tap frantically on your keyboard. But such errors can cost thousands, even millions of dollars, if you’re a bond trader. And traders say the risks of expensive and embarrassing mistakes occurring are made even greater by the lack of standardization among electronic trading platforms.
Jim Claire, director of fixed income trading at First Union National Bank, complains of a mishap that will be familiar to many traders: “We had one trader try and buy $100,000 of bonds, and instead he bought $100 million by mistake,” he says. “We had to ring up the trader at the other end, who didn’t even know about the deal yet because it’s auto-execution on their end as well. By the time we sorted it out the market had moved and we lost maybe $50,000 in opportunity cost.”
Traders are vulnerable to such mistakes because of the number of different platforms they use and the lack of standardization among them. Claire says: “We use six different platforms, each with their different practices. For example, if you want to buy $1 million of bonds on one platform, you write 1, while on some you write 1000, and on others you write 1m or 1mm. All these different practices mean these kinds of mistakes happen all the time. One of the problems is that the guys who put these systems together aren’t traders.”
Such problems make Claire nostalgic for telephone trading: “You don’t have these problems on the phone. You can say ‘I want to sell a million, oh sorry, did I say sell? I meant bid’, but with a machine you may not have time to notice. It could be a wrong entry for price, or something as simple as the wrong settlement date. Things like this stop traders from embracing e-finance fully. It may only take a few minutes to sort out, but in the bond market a few minutes is thousands of dollars.”
Claire thinks natural selection will sort this problem out and that TradeWeb’s procedures are most likely to set the industry standard for online platforms. This item first appeared at www.euromoney.com/bonds.
