December 7, 2023 | Stamford, CT — Despite the corporate bond market’s big move towards electronic trading over the past decade, 90% of the market’s biggest trades are still executed via phone or chat. This represents a huge opportunity for trading platforms that offer new tools to facilitate the trading of block orders on the screen.
A majority of the buy-side corporate bond traders participating in a new study by Coalition Greenwich believe chat continues to provide the best outcomes when trading block-sized orders, defined as those with a notional value of $5 million or more for investment grade and $1 million or more for high yield.
“Trading via phone and messaging platforms is seen by many traders as the best way to maintain important dealer relationships,” says Kevin McPartland, Head of Research at Coalition Greenwich Market Structure & Technology and author of Electronifying Corporate Bond Block Trading. “But this approach does not allow access to the broader set of liquidity providers found on the largest trading venues.”
A Catalyst for E-Trading Growth
Approximately 80% of study respondents say maintaining their dealer relationships plays a big role when deciding how and where to trade. As a result, only 10% of buy-side block trade orders are executed electronically, and more than two-thirds of buy-side traders manually select the dealers to include in their request for quotes (RFQs).
This continued reliance on chat and phone for block trades presents a large opportunity for trading venues. The potential benefits of executing more block orders on screen, coupled with new tools that that help keep dealer relationships intact, suggest change is on the way.
“With market-wide e-trading growth roughly flat over the past two years, bringing more block trades onto the screen could be the catalyst needed to move e-trading forward,” says Kevin McPartland.
Electronifying Corporate Bond Block Trading provides insights into the current state of block trading, identifies roadblocks and proposes strategies for a more electronic future.