Electronic Trading of Bonds in Europe: Weathering the Storm

by Anshuman Jaswal, PhD,  Axel Pierron, October 27, 2009
Industry Trends
EMEA

Abstract

The European fixed income market has grown rapidly in the last few years and has become the largest market, along with the US, in the world. In 2010-2012, there will be a recovery in overall trading volume as well as the level of electronic trading in Europe as the economy improves and spreads tighten.

In a new report, E-Trading of Bonds in Europe: Weathering the Storm, Celent analyzes the state of the European bond markets and the severe impact of the downturn on electronic trading, which reached levels far below those attained earlier in the decade. The report also discusses the various interdealer broker (IDB) and dealer-to-client (D2C) platforms.

The crisis has meant that market participants have been reluctant to invest more in electronic trading. It is believed that the bottom was reached towards the end of 2008 and that volumes have recovered in 2009. At present, government bond volumes are down around 20%-30% from their pre-downturn levels. Non-government bonds have suffered much more, with trading levels down 70% to 80% from their pre-credit crunch levels. However, both have recovered and should return to their predownturn levels in 2010.


"Different national markets are opening up at differing rates, resulting in a lack of homogeneity in the markets' development," says Anshuman Jaswal, Celent analyst and coauthor of the report. "The UK and Germany have had relatively open markets for some time. In the last few years, countries such as France, Belgium, Austria, and the Netherlands have created a more equal playing field for the various IDB platforms through the removal of the Primary Dealer (PD) platform requirements that have for a long time benefited MTS. However, Italy, Spain, and Greece have been slow to open their markets to international competition."

"The post-trade infrastructure for European fixed income should be revised. The current state of the post-trade infrastructure is a clear barrier to the growth of liquidity. It is noncompetitive and fragmented, and CCP services are only available for transactions conducted electronically," adds Axel Pierron, Senior Vice President at Celent and coauthor of the report. "With more competition, we could see development similar to what we saw in the equity market, where implementation of the Code of Conduct in conjunction with MiFID has driven a significant decrease in post-trading costs, indicating the emergence of truly pan-European clearinghouses such as Euro CCP and EMCF. This evolution would be beneficial to European fixed income market participants and, eventually, to issuers."

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

 

Impact of the Credit Crisis

3

 

Market Development

3

Introduction

6

Market Overview

 

Market Size

9

 

Market Participant Analysis

12

 

Role of the Aggregators

14

 

Clearing and Settlement

15

Government Bonds Market

18 

 

Interdealer Market

20

 

Dealer-to-Client Market

23

Electronic Trading Platforms

32

 

Interdealer Brokers

33

 

MTS

34

 

ICAP Broker Tec

37

 

BGC

40

 

Dealer-to-Client Brokers

42

 

BondVision

43

 

Tradeweb

44

 

MarketAxess

48

Conclusion

52

Leveraging Celent’s Expertise

54

 

Support for Financial Institutions

54

 

Support for Vendors

54

Related Celent Research

56

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