The ever-growing demand for immediacy services by the bond market investors and the market participants immense methodology of seeking ways to decrease the trading cost and elevate market liquidity, all these led to the evolution of this new way of the electronic trading scheme.
In accordance with this review, there occurred an immense growth in the respective use of such electronic trading platform schemes in the bond markets along with the advancing and emerging markets. However, the equity markets still offer a low level of electronic trading activity.
The survey of industrial trading estimates suggest that the digital mode of trading has accounted for
- Nearly 38 percent of the dealer-to-client trading volume
- Accounted for almost 14 percent of the cash in corporate bonds
- And mostly 76 percent in the foreign exchange readily for the spot trading type
Challenges faced by the present platforms
- It has been a common observation that the currently existing electronic platforms where typically used for some standard small capacity trading transactions while it can be operated for a good number of orders that forms a match on the regular basis.
Both the platform providers and the central counterparties have acquired all those instruments that were previously traded and bilaterally, risk-free too. This includes the swaps trading of futures and other related clearing derivatives CCPs scheme. Whatever so, for the existing majority of corporate bonds, the dispersed overflow would bind to work against the electronic platform use.
- The high-volume trades conducted by the firm investors also seem to be affected potentially on prices and is less suitable for trading on these platforms and hence require a dealer intermediation for negotiating the trading blocks in the equity markets.
The property of transparency is the main requirement and may limit the willingness of financiers and other dealers to do electronic trading that may reveal their trading strategy and portfolio positions. This has further resulted in the new trading strategy exploration that may split these transactions into small units to minimize the trading operation on the electronic platform.
As already stated, the electronic platforms never disclose the participants’ identity that may create distress in supporting market liquidity during the financial stress period. But the real firm investors depend on the voice-brokered trading during the economic crisis as these dealers might accommodate the clients from whom you can expect ancillary revenues from future business and thus contributes to the market liquidity.