Barclays Survey Finds Fixed Income Traders Coming to the e-Party – Finally

Barclays has released some high-level findings of a survey of fixed income traders, which finds that automation is starting to accelerate in these markets, driven by the better availability of data and, inevitably, regulation.

The survey was conducted by the bank’s market structure team and encompassed a broad swathe of financial institutions, from central banks to hedge funds, and found that “at long last”, e-fixed income trading is starting to gain traction.

Barclays has published four key takeaways from the survey, which included over 50 questions, perhaps the biggest being that customers are starting to execute larger tickets electronically. Interestingly, and perhaps contradicting the view that e-trading is largely for smaller tickets, Barclays says the survey revealed a narrowing gap between tickets and notional volumes executed electronically, with 68% of respondents executed more than 75% of their tickets in this fashion, and 56% executed 75% or more of their notional volume.

Inevitably, there is a flip side to the findings, in that the second highest group (17% and 23% respectively) to respond said they executed less than 25% of their tickets in this fashion.

The bank also observes that while Rates and Credit dominate, more clients indicated they increasingly e-trading in emerging markets and interest rate swaps.

The fact that the second largest group in the survey is, collectively, reluctant to embrace e-trading is a second takeaway for the bank, which adds that while execution management systems (EMS) potentially automate the entire lifecycle of a trade, from pre-programmed trading to settlement, in the survey over 60% of respondents indicated that they do not have an EMS. More to the point the bank says less than half are looking to implement one by the end of 2021, and asks, “What’s the hold up?”

Perhaps in answer, the bank says many investors, but particularly those in the Americas, indicated that they have experienced pricing fragmentation across different platforms for the same instrument. This is stressed in the findings, for in Rates, 89% of Americas respondents had experience fragmentation, compared to 67% in Asia Pacific and just 37% in Europe. In Credit, 83% of had experienced it in the Americas, 75% in Asia Pacific and 41% in Europe. Interestingly, and perhaps indicating a lack of engagement on the part of many fixed income traders, while just 11% of Americas traders answered “don’t know” to the fragmentation question in Rates and Credit, in Europe it was 44% in Rates and 35% in Credit that didn’t know, in Asia Pacific it was 33% and 25% respectively.

A third key takeaway was the growing influence of transaction cost analysis (TCA), Barclays says that over half of respondents use TCA, most popularly (19% of respondents) their core reason was for post-trade analysis of their trading. Regulatory responsibilities were cited by 13%, the same percentage of answers used TCA to compare execution costs to a benchmark, while 12% cited its use as an independent check for compliance.

Just 8% of respondents used TCA for pre-trade evaluation, 6% for dealer selection and 4% to aid in venue or protocol selection.

Regulation, as part of the bank’s fourth takeaway, has been, it says, “a double-edged sword”, with 69% of clients saying it had delayed innovation – 45% said the impact was somewhat serious, while 24% said it had impacted “a lot” and 21% said it had “not much” impact. Conversely, 10% said regulation had prompted innovation.

“We’ve seen significant electronification, as well as adjustments in how firms trade fixed income securities over the last five years, but also observed a rapid acceleration over the last couple of years,” says Matthew Coupe, director of cross asset market structure for Barclays’ Global Markets business. “As more firms migrate to electronic trading, the trend becomes self-perpetuating.”