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What’s next for fixed income market automation?

Jon George
Jon George
Global Head FICC Trading Solutions at LSEG

A report by Refinitiv and Coalition Greenwich explores the impact of automation on the fixed income market and how it could be expanded further.

  1. Automation momentum is growing, and improving pre-trade workflow and trade processing. However, it is still fragmented and so workflow efficiency is a priority.
  2. Following the huge changes to working practices induced by COVID-19, new trading realities call for greater flexibility.
  3. Cloud technology will move the market forward. It provides the foundations for expansion of fixed income, helping to facilitate the creation and consumption of data.

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Over the last ten years, the fixed income market has greatly evolved. Cloud, artificial intelligence, and electronic trading have changed how data is collected, aggregated, stored, and put to work.

The exponential growth of automation, however, has had the greatest impact. It’s turned a highly manual market into a more efficient, innovative industry. But there’s always room for improvement.

Automation of fixed income

Our new report with Coalition Greenwich shows tremendous opportunity to increase the use of automation throughout workflows in the fixed income world.

Here are three takeaways from our survey of market professionals’ perceptions of the future:

1. The momentum is there, keep it going

The conversation is no longer about the emergence of electronic trading in fixed income. It’s here. And it’s improving pre-trade workflow and trade processing, freeing time for more value-added tasks.

Trading workflow, however, remains quite fragmented. In some fixed income sub-asset types, it’s difficult to find a central source of price transparency and execution. Trading desks still heavily rely on tools like email and phone calls to exchange data.

Because this can be challenging in today’s fast-moving markets, workflow efficiency is now top of mind, specifically on how to increase the quality of end-to-end workflows. That includes better pre-trade pricing data and faster, more transparent settlement processing.

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2. New trading realities call for greater flexibility

The pandemic spawned new ways of interacting with our colleagues and partners digitally and altered how market professionals conduct their business.

Trading desks have developed habits that they’re not likely to give up. Instead, more time is being spent on the automation of existing processes and workflows to ensure operations can continue uninterrupted in a hybrid work environment.

A decade ago, the technology focus in fixed income markets was on electronic trading expansion. Today, pre-trade transparency and post-trade processing tops the list.

This suggests a shift in focus for bond-market venues, which prioritises a market participant’s full experience over the point of execution.

Better data, workflow automation for smaller orders, and the ability to manually enter voice trades to automate the settlement workflow are also popular additions to the market.

As the fixed income arena evolves and adapts, market participants need trusted data and technology.

Refinitiv’s tools and exclusive datasets give our clients the flexibility to choose what to use and how particularly as they navigate the expanding universe of fixed income opportunities.

Clients have a consistent view across products to establish appropriate levels of standardisation while still respecting asset class specifics.

3. Cloud will move the market forward

Numerous technologies and industry initiatives are available to help drive automation and workflow efficiency.

Cloud computing, in particular, provides the platform for automation and has played an outsized role in the progress seen to date. It has enabled both the creation and consumption of data in fixed income markets.

Cloud’s almost limitless compute power makes it possible to produce liquidity scores and continuously evaluated bond prices with unmatched frequency and accuracy.

Additionally, cloud-deployed applications can interact seamlessly with other cloud-deployed applications and data, which is a huge win for process automation.

However, the mere existence of the cloud doesn’t make markets efficient. Technologists and traders still need to leverage the tool effectively.

62% of respondents say they are now using cloud computing at some point in their trading journey. Another 17% are examining how to adopt the technology.

Breaking the resource barrier

There’s no lack of appetite for the continued automation of the fixed income trading workflow. So, what’s holding back further technology adoption?

51% of respondents cite limited budget as the major roadblock.

A new technology’s return on investment can be hard to quantify in the short term, so getting budget approval for the development or purchase of new solutions can be challenging. Still, the most popular cost-cutting measures include vendor consolidation and increased trading automation.

Clients using Refinitiv are offered a wide variety of pre-and post-trade analytical tools to enrich their trading workflows.

For example, workflow integration is supported through Yield Book’s best-in-class analytics –available on Refinitiv Eikon.

This means traders can access a diverse set of fixed income analytics, real-time pricing, news, and charting in a single application, without compromising valuable screen real estate.

Future trading desks can only thrive if they simplify trading workflows and increase automation. The speed and efficiency that this delivers will ultimately lead to better performance, risk monitoring, regulatory compliance – and profits.

And now that the technology exists to do virtually everything trading firms have done manually in the past, the next few years should be nothing short of astonishing.

For more insights, read the full report, Fixed Income Trading: The Next Evolution of Market Automation


How has automation impacted upon the fixed income market?

Cloud, artificial intelligence, and electronic trading has changed how data is collected, aggregated, stored, and put to work.