SIFMA 2011: When will electronic trading come to the fixed income market?

Ary Khatchikian, president and CTO, Portware

At Sifma 2011, BST sat down with Eric Goldberg and Ary Khatchikian of Portware to discuss when the fixed-income market will become automated and how long it will take to reach a critical mass.

How automated is the fixed-income market currently?
Goldberg: We have some fixed-income ECNs, but they haven't yet standardized terminology or security classification. You can do it easily enough with government bonds, but there are a million different bonds out there. Electronic trading of bonds has not been easy. You have the Tradeweb types—there are a few out there—who are starting this, but the dealers don't really want to be spitting out feeds like they do in foreign exchange (FX).

Why is this starting to become an issue?
Goldberg: Everybody is looking for those analytics for transaction-cost analysis (TCA)—there's no way to calculate those. There's no way to do analytics if you don't have electronic trading because you need to benchmark and get a snapshot of all those different points.

Khatchikian: And you need your own data rather than, essentially, farming it out to someone else and paying all these additional fees and having people collect that and present it to you. You want to do that with your data in as close to real-time as possible.

Why is Portware interested in this becoming more of a reality?
Goldberg: We're dying for this to start happening because when we built our FX product we specifically designed it from an architectural perspective to immediately move over to fixed income. We're ready to support it in literally no time; it's just a matter of getting the dealers willing to start doing it.

How far away are we?
Goldberg: It's been bubbling for a while, but clients are going to have to start pushing for it because they are going to have to start documenting their fixed-income trades and have that audit trail, just like we're all trying to do with FX trades.

Will this change happen this year, or are we looking more into the future?
Goldberg: I think we'll start seeing it in 2012, but it'll really start to happen in 2013. Nobody has resources right now to internally develop it, and everyone has their IT staff working on all the Dodd–Frank stuff, so nobody is going to put resources into this right now. It's going to be a large bank that doesn't have a big business that has nothing to lose that will kick it all off. It's going to be like Credit Suisse was in equities with Advanced Execution Services (AES); it's going to catch on so quickly that everyone is going to start jumping on.


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