Electronic fixed-income trading expands to 46% of investors
Market demand is driving year-on-year growth in electronic fixed-income trading, with 46% of investors trading at least some of their volume electronically, according to a report by Greenwich Associates. The report said the enforcement of MiFID II in January next year would stimulate growth in the sector, as it would "create the economic incentive to further automate trading". Critics argue the enforcement of pre-trade transparency rules would cause a rise in information leakage and price manipulation.

The number of investors trading fixed income electronically has continued to grow year-on-year, with 46% now stating they trade at least some of their volume electronically.

A Greenwich Associates report found the growth in electronic trading across fixed income has steadily grown since the financial crisis.

In 2011, just 18% of fixed income was traded electronically globally on a volume-weighted basis, but this surged to 37% in 2016.

Kevin McPartland, head of market structure and technology research at Greenwich Associates - and author of the report - explained the trend will likely remain.

“The slow but consistent growth over the past several years is continuing, despite a lack of new regulation requiring that more trading be done on the screen. This is strong sign that the change is driven by true market demand and is therefore here to stay,” he said.

Greenwich also said the organic growth will receive a further boost from MiFID II when it comes into force in January next year.

“While those rules stop short of mandating electronic trading, requirements related to pre-trade price transparency and reporting certainly create the economic incentive to further automate trading,” the report said.

Fixed income traders have warned that pre-trade transparency rules under MiFID II could undermine already diminishing liquidity.

In May last year, one fixed income dealer - who asked to remain anonymous - explained pre-trade transparency rules simply wont work in fixed income markets.

He said: “The market is worried about an increase in price manipulation and information leakage following the implementation of pre-trade transparency rules. Those are the issues we face in a pre-trade transparent world.”