How Technology is Powering Fixed Income Trading?

How Technology is Powering Fixed Income Trading?

By Capital Markets CIO Outlook | Wednesday, May 06, 2020

 Fixed Income TradingFixed-income trading now realizes that modernization is inevitable and rewarding at the same time.

FREMONT, CA: The volume of fixed income trading has grown over the decades. This growth in volume, coupled with the rapid advancements in technology, has paved the way for modernization. Although fixed-income trading has not seen a technology-backed transformation like that of stock trading, new tech trends are now emerging. There are many reasons why fixed-income trading has taken a cautious approach to innovative digital capabilities. However, with the advantages of digital solutions becoming apparent, even fixed income trading is on the verge of a major makeover.   

The bond market has traditionally been less transparent and has favored trading telephonically. In the era of connectivity and automation, this might seem way too old-school. Even quantitative research and analyses follow inefficient, manual methods to a certain extent. This makes trade execution a slow and inaccurate process. However, these aspects are now becoming a thing of the past as stakeholders in the trading industry are realizing the potential of technological interventions in helping fixed income trading overcome longstanding challenges like delays and human errors.

Sources say that almost two-thirds of bonds from the government, as well as the corporate sector, are now available electronically, replacing over-the-counter methods. Along with that, traders are turning to data-centric capabilities that drive intelligent decision-making and trading operations. Bonds have become more attractive for investors, and trading has achieved improved levels of efficiency. Technologies like Robotic Process Automation (RPA) are taking over repetitive and cumbersome middle and back-office tasks, enabling quicker and more accurate outcomes. From trade processing to reconciliation to fund administration, the role of RPA has been growing significantly.

Even technologies like AI and blockchain are now entering the sphere of fixed income trading with investment executives identifying these as growth drivers. These technologies have the potential to bring about fundamental shifts in areas such as trade clearance and settlement, and credit underwriting. As a consequence of these changes, staffing patterns have also transformed, and the complications, costs, and time involved in facilitating bonds have reduced by a significant margin.


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