Barclays Fixed Income Survey Finds RFQ Still Dominating

Barclays has released three key findings from its third annual fixed income market structure survey, identifying the continuing dominance of RFQ as a trading mechanism, challenges around data integration, and an increase in portfolio trading.

The bank’s market structure team received responses from 480 clients, with assets under management ranging from multi-billion to over $1 trillion. The first key takeaway from the bank is a sustained interest in RFQ mechanisms, in spite of new protocols emerging in fixed income markets. For Rates tickets, the survey found that 50% of respondents use e-trading venues for at least 90% of the time, while in notional terms, 44% of volume is e-traded by these participants. Credit traders’ ratios are 27% and 23% respectively.

Around 60% of respondents were using RFQ protocols, in spite of other mechanisms emerging, which Barclays identifies as request for market (RFM), click-to-trade, fully firm, portfolio trading and direct connectivity. This actually marks a small increase from last year’s survey, in which around 50% of Rates trading respondents (it was a smaller sample set) said they e-traded using RFQ.

Reflecting a broader trend, especially amongst asset managers, the survey found that the automation of workflows continues to grow. Barclays says adoption of automated execution is growing year on year in the Rates market where there was a significant increase in the percentage of clients who put more than 50% of their flow through automated rules engines such as Tradeweb’s AiEX, Bloomberg’s Rule Builder, and Bondvision’s MTS Auto Execution. “While still not the majority, we saw a 10% increase in the number of Rates clients using these tools year on year,” the bank says. “These systems are enabling two key outcomes for clients: firstly, reducing the amount time traders are spending on small size trades, where they can add little value in the execution. Secondly, with this additional time, traders can spend more time on the difficult trades where they can add significant benefit.”

Of those clients who do use automated execution settings, the survey found about 30% review their settings quarterly, while 18% said they haven’t changed these settings since they went live.

The challenges around integrating data into workflows is the second key takeaway from the bank, which says systematic ingestion of axes and runs is the most popular take on integrated data with more than 24% of clients consuming it in an automated or semi-automated manner. It adds, however, that compared to the 2022 survey, clients are increasing the use of other data types, including evaluated pricing, measures of market depth and dealer data products.

The number one use-case for integrated data is dealer selection, according to respondents, with about 20% reporting this use case for both Credit and Rates products. Clients are also leveraging data across the investment lifecycle to help inform their investment decision making, Barclays observes.

“Though it is now materially important to have systematic data integrated into trading systems, the task is often easier said than done,” Barclays says. “Of those surveyed, 36% reported an inability to integrate data into their systems at the level desired. They also reported other hurdles, including cost increases and inconsistent business data standards. With such a sizeable portion of respondents highlighting issues, a divide may open up between those who have made the leap and those who lag behind.”

The third takeaway is more niche, the survey found that portfolio trading in Credit is growing, but mainly thanks to existing users using the mechanism even more, rather than due to an increasing number of clients accessing the protocol. “In 2023, nearly 12% of clients were trading 25% or more of their flow through portfolio trading. That’s up 8%, from 2022, with 4% of clients trading more than 25% in 2022,” Barclays reveals.

Additionally, it says traders are becoming more sophisticated in the ways they create and select counterparties by using pre-trade tools provided by dealers and platforms. These tools aid traders with portfolio formation for trading, dealer selection and execution cost estimates.

“Electronic trading is maturing in fixed income markets and the technology is ever changing,” the bank observes. “Barclays’ market structure team surveyed a diverse set of buy-side clients about trading venues, data integration, rules engines and more. The responses show strong engagement and an awareness from investors to the challenges ahead for keeping pace as digitisation evolves further.”