Credit becomes a special case
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Credit becomes a special case

Equities might enjoy all the glory at the moment but watch out for credit. This techno-laggard of the financial markets is set for an electronic great leap forward. If proof were needed - even the venerable CBOT has been showing interest. Antony Currie logs on.

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While foreign exchange moved to an electronic broking system in 1992 and equities became gradually more automated - in Europe at least - the credit market in the main sat back and watched.

Much of the reason is to do with the structure of the market. Three major factors differentiate the bond markets from other products. First, there is no central exchange, for cash products at least. As a result there has been neither a central market-place for price discovery nor outdated structures nor malleable regulations to exploit in the way the ECNs have in the equities market.

Second, they are the most complex of the financial products, not homogenous as equities and foreign exchange largely are. The complexity of subproducts in the credit markets - plain vanilla, varying maturities, zero coupon, inflation linked, credit derivatives, to name but a few - has increased in the past decade, as has the sophistication of the major players.

Third, investment banks chose to integrate these changes, adapting their existing structures to do so. This has helped to keep the credit markets more opaque, so allowing investment banks to charge for their services of interpretation.


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