Automated trading in debt markets is set to “explode” in coming years amid an influx of new entrants and a rotation away from stocks, according to a high-profile equities executive lured to corporate bond trading venue, MarketAxess.
Chris Concannon, named chief operating officer last week, said the opportunity to participate in the structural shift was “a chance that comes along once in a career.”
His switch to MarketAxess, a New York-based electronic trading platform which has a market capitalisation of $8bn, is a coup for the $50tn bond market, where deals have historically been negotiated privately and often over the phone.
Tougher post-crisis rules on banks have curbed their traditional role as market intermediaries, trading and warehousing debt on behalf of customers. As they try to improve returns on bond trading, many banks have backed electronic venues or networks that match potential buyers and sellers — to limited success. Around a quarter of US corporate bond trading is executed electronically, according to Greenwich Associates, a capital markets consultancy.
“It’s a market that deserves a lot of attention given its size and breadth and there’s a lot of evolution,” Mr Concannon told the Financial Times. “The most actively traded stocks are fixed income exchange traded funds (ETFs). There’s huge demand to trade the underlying [assets], using automated trading . . . the level of automation will explode in the years ahead.”
His comments come after sharp market moves last month reignited the long-running debate over the role of high-frequency traders, which use high-speed algorithmic trading to execute deals across all assets. Last week JPMorgan argued it was their absence that contributed to volatility in US Treasuries over the holiday period.
Mr Concannon started as a lawyer, then took senior roles at Nasdaq, electronic market maker Virtu Financial and then Bats Global Markets, which made him one of the equity market’s biggest names.
At MarketAxess Mr Concannon will oversee day-to-day operations and corporate strategy. He hopes to apply his equities and tech knowledge to the company’s Open Trading platform, where all types of dealers and investors can mingle.
The platform’s average daily volumes in the third quarter to September 30 surged 58 per cent year-on-year, to $1.4bn. It now accounts for 22 per cent of MarketAxess’s total volume, up from 12 per cent two years ago.
Mr Concannon ascribed the evolution of the market, in part, to a new group of electronic market makers that rely on automation. “When I see newcomers to the market. that’s exciting to me . . . I’ve seen that before. When you think about the macro level, that there is a turn away from equities . . . ETFs will consume a lot of the capital.”
MarketAxess “had not cracked” the retail market, he admitted, as individual investors’ orders are smaller than those of institutions.
However automated traders were more prepared to break up their orders in favour getting the trade done more quickly, he argued.
“If you look back in history the markets that have succeeded the most are the ones that have brought together institutional and retail investors in the same place,” he said.