Bond traders at Pictet Asset Management are about to start learning computer coding to help them understand the technological changes sweeping through one of the final frontiers of ‘old-style’ trading. Four in every five trades at Pictet, which manages around $200 billion, are now placed electronically – tapped into a machine aggregating prices and analyzing data from dozens of banks and trading venues.
Pictet’s head of fixed income trading hired a data expert and the coding trading should help the traders to better understand the new technology they are using. Some fund managers have gone one step further since the introduction of the EU’s new MifiD II rules to improve transparency. They have built systems where computers replace humans in deciding when to buy and sell.
Nearly two-thirds of government and corporate bond orders in the United States and Europe are now placed electronically on average, according to 12 large asset managers, banks and trading venues interviewed by Reuters. Volumes are also rising in more specialized markets such as junk debt, emerging markets, repurchase agreements and swaps.
Proponents say the shift to electronic and automated trading should make the bond market more transparent, lower costs for the ultimate buyers – asset managers like pension funds – and give fund firms power held by banks to get the best prices. Along with lower market volatility and tighter regulations, the shift to electronic trading has contributed to a reduction in staff on trading desks at banks and fund firms, banks and asset managers said.
Daily trading volumes for government bond and credit products on electronic platform Tradeweb rocketed to $368 billion on average in 2018, up two-thirds from 2016. “The first battle was between getting people off the phone and clicking a mouse,” said Billy Hult, president of electronic platform Tradeweb, speaking to Reuters. Last month Tradeweb went public with a valuation of nearly $10 billion. “Now the mouse is going away and it’s about engaging with clients through algos and more sophisticated tools.”