Oct 31, 2017

Technology in Fixed Income Trading | Analyst Insights with Greenwich Associates

In a market defined by capital requirements and increased regulations that squeeze margins, as well as truncated trading volumes and historically low interest rates, the primary solution to preserving fixed income trading revenues and profits has been the use of sophisticated technology, such as that which supports electronic trading. For about 10 years now, only the handful of banks that had the depth of pocket to make strategic investments in technology are the ones that have dominated the market. Their hundreds of millions in tech spend enabled them to build systems that allowed for, for example, high frequency trading, auto quoting, the internalization of trades, immense analytic capabilities, and the use of low-touch hedging tools. This, in part, explains why the top U.S. government bond dealers continue to handle nearly 60% of client trading by volume.

However, as a new report released by Greenwich Associates entitled, The Technology to Succeed in Fixed-Income Trading, explains, a huge technology budget is no longer necessary to attain sophisticated trading technology. The report highlights a new trend in the fixed income market that is providing opportunity for emerging and middle market dealers. The high-tech capabilities that have historically been available to the small few are now in reach for second and third tier dealers by way of off-the-shelf solutions that offer just about the same sophistication as the systems built by the bulge bracket. What Greenwich Associates emphasizes, on the other hand, is that only those other trading firms that take this technology opportunity to heart will emerge as winners, whereas those that don’t will fall to the wayside . . . quickly.

In this video, James Jockle, Chief Marketing Officer at Numerix, sits down with Kevin McPartland of Greenwich Associates to discuss this and other fixed income market making trends featured in the report, such as the market impact of non-bank liquidity providers.

The report itself is available by clicking here.

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Reflecting on SIFMA: Risk and the Explosion of Market Complexity

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