New EU rules electrify fixed income trading volumes - survey
* Electronic trade in govt bonds up 36 pct, credit up 39 pct
* MiFID II rules introduced in January 2018
* Electronic trade to expand as more dealers connect
(Adding details throughout)
By Josephine Mason
LONDON, Jan 17 (Reuters) - Volumes of electronic trading in
fixed income have jumped since European Union rules introduced a
year ago made it more cumbersome to execute over-the-counter
(OTC) business, in a bid to make deals more transparent, a
Total average daily volumes of EU government bonds traded
electronically in the first three quarters of last year rose by
36 percent to $57 billion, the report by Greenwich Associates
based on a survey of fixed income investors said.
Credit volumes on electronic platforms jumped 39 percent to
$4 billion over the same period, it found.
Market participants are using electronic platforms more
because the European Union's Markets in Financial Instruments
Directive II (MiFID II), introduced in January 2018, made it
more onerous to carry out OTC trades, it said.
Electronic venues make time stamping and data reporting
easier compared with OTC, the report said.
Electronic trading in interest rate swaps by European
buy-side fixed income traders jumped by 36 percent in 2018,
compared with 20-percent growth a year earlier, the report
MiFID II, the second iteration of sweeping rules aimed at
increasing transparency in financial markets, was broadened
beyond equities to cover other asset classes, including fixed
income, derivatives and exchange-traded funds (ETFs).
Spot foreign exchange was excluded, but forex derivatives
are covered by the rules, which require pre- and post-trade data
to be reported. For instance, the prevailing price in the market
must be checked and recorded prior to executing a deal.
Greenwich said traders expected electronic trading to expand
as more dealers were connected and adjusted their workflow.
Algorithmic trading, common in equity and foreign exchange
markets, could take off in fixed income, Greenwich said.
MiFID II and more robust requirements for so-called best
execution, including comparing prices across brokers, were
boosting the use of transaction cost analysis (TCA), which helps
traders measure performance against execution benchmarks, it
Of the European equity traders surveyed, 95 percent said
they used TCA, up from 74 percent in 2017.
Usage is increasing in fixed income, where it accounts for
50 percent, and foreign exchange, where it accounts for 63
percent. Those are still below levels in equity markets.
"Outside of equities, we can expect to see continued
increases in e-trading and new venues emerging," the report
The rising use of TCA is expected to boost electronic
trading as algorithms are designed to achieve specific TCA
(Reporting by Josephine Mason
Editing by Alexander Smith and Edmund Blair)
First Published: 2019-01-17 15:40:37
Updated 2019-01-17 17:01:43
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