As of January this year there are 128 trading platforms available for fixed income trading, suggesting the explosion of new bond venues is yet to slow down.
Between November 2016 and January this year, 14 new fixed income trading platforms joined the market, according to a recent blog post by John Greenan, a front office trading technology consultant.
The asset class is overcrowded with trading venues as regulation forces the structure of fixed income across instruments away from a centralised model – mostly due to bank balance sheet constraints - towards a decentralised model.
Market participants have said the explosion of venues is causing fragmentation and a ‘liquidity drought’ in global bond markets.
Large buy-side firms and asset managers have the opportunity to act as price makers rather than price takers, according to a quarterly report published by the International Capital Market Association (ICMA) this week.
The report said the bond market has seen a decrease in ratio turnover, despite an increase in market size and overall turnover against a backdrop of bond issuance, as issuers take advantage of low interest rates globally.
Joanna Cound, head of public policy EMEA at Blackrock and a member of the ICMA board, explained this has led to liquidity in fixed income markets suffering, something regulators have taken a greater interest in over the last year.
Fixed income participants are wary the bond market has not improved significantly since the financial crisis, as future stress events could have far-reaching consequences.
Christine Kenny, managing director at Loomis Sayles Investments said at the 2016 Global Capital Markets Conference in London in December: “I don’t think the bond market has been fully tested yet and I worry most about this.”
She also explained to delegates that at the height of the financial crisis, she was able to carry out more trades than in today’s market.
“Each buyer back then took around $50 million bonds from me, but I don’t have a single bank that would take that amount from me today, perhaps across five banks.” she said.
One delegate strongly agreed with Kenny’s experiences and said in 2008, “you could get anything done with your counterparties, but now it is an act of God!”