What’s Next for Fixed Income? Non-Bank Liquidity Providers in Focus

Fixed income markets are undergoing a quiet but profound transformation. Once dominated by traditional dealer balance sheets, liquidity provision is increasingly shaped by non-bank liquidity providers (NBLPs), advances in electronic trading, and changing regulatory economics.

In a recent Numerix webinar, Non-Bank Liquidity Providers and Fixed Income: A New Market-Making Order, James Jockle, Chief Marketing Officer at Numerix, sat down with Kevin McPartland, Head of Market Structure and Technology Research at Crisil Coalition Greenwich, to discuss how these forces are reshaping liquidity, risk transfer, and market resilience across fixed income. Below we share select highlights of the conversation. 

What is a “non‑bank liquidity provider”?

In the context of this discussion, NBLPs are principal trading firms—proprietary market-makers that deploy their own capital to quote two-sided markets, typically in a highly systematic, technology-driven way. Importantly, this definition is intentionally narrow. It excludes hedge funds, traditional asset managers, and non-bank broker dealers whose primary activities or capital sources differ from proprietary liquidity provision.

While many of these firms also run proprietary trading strategies, the focus here is on their market making role, where profitability is linked to providing continuous two-way pricing rather than directional investment views. This distinction matters to understand how liquidity is supplied and how it behaves under different market conditions.  

Why their role has expanded

Over the last decade, there has been a tremendous degree of evolution in fixed income markets, which has included the growing influence of non-bank liquidity providers. Much of this evolution was due to structural change following the global financial crisis. Capital and leverage requirements made it more expensive for banks to hold inventory and commit balance sheet to market-making activities. At the same time, fixed income markets continued to grow in size and complexity, maintaining strong demand for bank liquidity providers. 

As electronic trading expanded, particularly in standardized products, non‑banks were well positioned to step in. Their business models emphasize automation, data analysis, and rapid risk management, allowing them to participate effectively without relying on large balance sheets.

This shift is measurable. Kevin relayed that according to Crisil Coalition Greenwich research, non-bank liquidity providers generated $25.6 billion in market-making revenues across all asset classes in 2024.

Mixed adoption across fixed income

Non-bank participation is not uniform across fixed income markets. U.S. Treasuries represent the longest standing and deepest area of involvement. These markets are highly electronic, often anonymous, and supported by robust futures markets, enabling continuous pricing and efficient hedging. Bank participation is not uniform across fixed income markets. U.S. Treasuries represent the longest standing and deepest area of involvement. These markets are highly electronic, often anonymous, and supported by robust futures markets, enabling continuous pricing and efficient hedging.

Participation has also expanded in corporate bond markets, particularly in the U.S. and increasingly in Europe. Over the past decade, these markets have evolved significantly, with electronic protocols becoming more prevalent. In some cases, non-bank firms now operate client-facing models, systematically responding to requests for quotes and competing directly alongside traditional dealers. 

Other asset classes are earlier in their evolution. Municipal bonds, for example, remain far less electronic. During the session, Kevin reported that roughly half of U.S. investment grade corporate bond notional trades electronically, compared with only 18–19% of municipal bond volume, indicating potential for further development. 

The foundational role of electronic trading

Electronic trading is a prerequisite for non‑bank liquidity provision at scale. In rates, central limit order books allow firms to stream prices continuously. In credit, electronic RFQ protocols, portfolio trading, and venue innovation have reduced frictions and enabled broader participation.

Equally critical are the tools used to manage risk. Instruments such as treasury futures and fixed income ETFs provide mechanisms to offset exposure quickly, allowing firms to maintain consistent pricing even when individual cash bonds trade infrequently. These linkages between cash instruments, derivatives, and ETFs are now central to how liquidity is distributed across fixed income markets. 

Liquidity behavior during periods of stress

A frequent question is whether non‑bank liquidity is reliable during volatile markets. The answer is that it behaves differently, not necessarily worse. Non‑bank liquidity providers do not absorb risk by warehousing inventory for extended periods in the way banks historically did. Instead, they adjust exposure quickly as conditions change.

Research and market experience over the past decade suggest that these firms generally remain active during periods of stress, even as volatility rises. Market resilience increasingly depends on having a diverse set of liquidity providers, each operating with different constraints and incentives. Understanding how and where liquidity may change during stress has become an essential consideration for market participants. 

AI and technology in non‑bank liquidity provision

NBLPs have been using machine learning and AI for years, well before it became mainstream. As Kevin explained in the session, these firms have relied on machine learning to analyze very large amounts of data, look for signals, and support how they price and manage risk. They are systematically-driven and technology-heavy organizations, where the real differentiator is the technology, the algorithms, and the people building and improving them over time. While there is a lot of attention today on generative AI and large language models, Kevin noted that in trading and market-making the impact so far has been more evolutionary than revolutionary, with broader use developing gradually across the markets.

Higher demands on risk management

As liquidity becomes more fragmented and more responsive to market conditions, risk management expectations have risen. Trading desks and asset managers now need improved intraday visibility, stronger stress testing, and a deeper understanding of market microstructure.

Historical assumptions about dealer support or average transaction costs are no longer sufficient. Firms must account for faster feedback loops and the interaction between cash bonds, ETFs, and derivatives when assessing liquidity and market risk. Advanced analytics play an increasingly central role in navigating this environment. 

Regulation and the path forward

Both banks and non-banks operate under regulatory oversight, though within different framework that reflect their distinct business models. While post-crisis rules constrained dealer balance sheets, regulatory focus today is less about reversing structural change and more about market resilience, transparency, and operational robustness.

Looking ahead, the fixed income market is likely to continue evolving toward a more distributed and electronic model. For market participants, success will depend on accepting this reality, investing in tools that illuminate liquidity under varying conditions, and understanding how different liquidity providers interact across markets.

For deeper context, watch the full discussion here: Non-Bank Liquidity Providers and Fixed Income: A New Market-Making Order.