This New Greenwich Associates Report Discusses Why the Use of New Trading Technology Will Separate the Winners from the Losers in the Fixed Income Business

“While building trust with clients is still a critical part of the fixed-income business, moving forward without investing in technology is not feasible.” – Kevin McPartland, Head of Research for Market Structured & Technology

For nearly 10 years, the fixed income trading business has been marked by a rigid regulatory, low interest rate and low volatility environment. This has resulted in lower dealer revenues and profit margins as volumes remained depressed and the profitability per trade shrunk. But there are some global and regional dealers that have actually seen their market share grow. Why? They invested heavily in the type of technology that allowed them to increase distribution, reduce costs, and manage the market and service the customer better than their competitors. To better understand the need for and role of technology in the fixed-income market, Greenwich Associates published a new report based on interviews with 173 fixed-income investors, in addition to top-tier broker-dealers and liquidity providers.

High-tech features such as autoquoting, real-time pricing streams and low-touch hedging tools allow top traders to focus more attention on revenue generation and less time on tasks a machine can now handle. Finding and retaining top-quality sales talent is still critical in this business, but those with the best technology to both augment and automate mission-critical day-to-day tasks will continue to emerge as the winners.  The largest banks have taken this idea most to heart over the past five years. For example, the top six government bond dealers in the U.S. are currently spending nearly $25 billion on technology. This, in part, explains why the top five U.S. government bond dealers continue to handle over 55% of client trading by volume.

However, as this report explains, a huge technology budget is no longer necessary to attain sophisticated trading technology. Third-party providers can now deliver and support a trading desk suite for second- and third-tier dealers looking to gain that high-tech edge. Greenwich Associates research shows that, as of 2016, approximately 44% of fixed income dealers use an execution management system provided by a third party, and that number is expected to grow rapidly.

New technology alone does not guarantee growth, as having the right people and process in place to capitalize on the new capabilities remains critical. Nevertheless, as Greenwich Associates ascertains, the next generation of fixed-income dealers will succeed only with technology at their core.

About Greenwich Associates

Greenwich Associates is the leading global provider of market intelligence and advisory services to the financial services industry. Greenwich Associates specializes in providing fact-based insights and practical recommendations to improve business results. Its insights and advice are based on business expertise and research conducted with influential buyers of financials services. These buyers include fund managers, hedge funds, pension funds, endowments, large corporations, small & mid-sized businesses, and consumers.

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