July 25, 2023 | Stamford, CT — Europe’s corporate bond markets are the most electronic corporate bond markets in the world.
According to new research from Coalition Greenwich, 62% of European investment-grade corporate bond trading volume was executed electronically in 2022, as was nearly half (49%) of notional high-yield volume. By comparison, 40% of U.S. investment-grade corporate bond trading volume and 31% of high-yield volume were traded electronically last year.
“In both the EU and the U.K., we expect trading volumes to continue migrating to new, electronic trading protocols due to a combination of innovation and regulation,” says Kevin McPartland, Head of Research at Coalition Greenwich Market Structure & Technology and author of European Corporate Bond E-Trading Update 2023.
On the innovation front, two thirds of investors plan to adopt auto-execution functionality, trading algorithms that send trades to dealers via trading venues depending on the characteristics of the order. Over one-half of investors also plan to route more orders into all-to-all networks, continuing a trend that began its growth trajectory nearly a decade ago.
Regulations Fueling Move to E-trading
Regulators are also making the European market more conducive to electronic trading with new proposed rules that will increase trade reporting and require additional trading-venue registration, both of which would help to create a more standardized framework for e-trading across the region.
The development of a more standardized e-trading environment will also help facilitate the flow of data—another key factor in investors’ decision to shift trading volume to electronic platforms.
“It is much easier for market participants to comply with trade reporting requirements when trades are executed electronically, and buy-side traders may find it easier to connect to trading venues that all operate under a standard framework,” says Kevin McPartland. “In general, the more data that is available, the easier it is for investors and traders to enter and stay in the market in search of alpha.”
European Corporate Bond E-Trading Update 2023 traces the evolution of e-trading in European corporate bonds, identifies the most popular protocols, ranks the most heavily used trading platforms, and projects future growth.