As U.S. Investors Embrace New Corporate Bond Trading Protocols, U.S. Outpaces Europe in E-Trading Growth

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July 13, 2021 | Stamford, CT — Although Europe has long led the U.S. in terms of its share of corporate bond trading volumes executed electronically, e-trading is growing at a much faster rate in the U.S.

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Few financial markets can match the pace of technology innovation and change seen in the corporate bond markets over the past five years. Innovation in trading protocols, data access, data quality, analytical tools, and collaboration technology are driving rapid transformation in corporate bond markets around the world.

U.S. E-Trading Is Growing At A Faster Rate

In 2020, European market participants executed nearly half (47%) of corporate bond trading on electronic systems. That topped the 31% of U.S. investment-grade corporate bond trading volume and 21% of high-yield volume executed electronically. However, new data from Coalition Greenwich shows that e-trading is growing at a faster rate in the U.S. From 2017 to 2020, U.S. investment-grade and high-yield bond e-trading grew by 111% and 145%, respectively, compared to 61% growth in Europe.

“The U.S. is outpacing Europe in growth because U.S. traders have been more willing to try new ideas like anonymous RFQs and all-to-all trading,” says Kevin McPartland, Head of Research in the Coalition Greenwich Market Structure and Technology group and author of European Bond Trading Innovation.

In the U.S., anonymous RFQs and all-to-all trading now account for nearly half of platform-traded volume. Most trading in Europe, on the other hand, is via traditional RFQs to five dealers. Case in point, 64% of the European corporate bond investors that participated in the Coalition Greenwich study said they use an RFQ to five dealers or fewer, compared to only 29% using an anonymous RFQ, with not much change expected in the next two years.

Over the long term, however, Coalition Greenwich expects European trading practices to evolve, and the data shows change is already underway. Real-time evaluated bond prices and available post-trade data have improved, use of all-to-all trading mechanisms is starting to increase by both dealers and the buy side, and automation of the trading process from pre- to post-trade is starting to take hold.

“Changes in market behavior will come only when traders see new tools improving execution quality, as old habits die hard,” says Kevin McPartland. “However, with increasing evidence that protocol choice is key to market liquidity, we expect market participants in all regions to transition to the trading strategies, investing strategies and securities profiles that most reliably achieve best execution.”

About Coalition Greenwich

We are a leading global provider of data, analytics and insights to the financial services industry.  We specialize in providing unique high value data and actionable information to help our clients improve their business results. The firm's data and analytics provide a clear, actionable picture of businesses and markets and are valued by boards, strategy teams and top management at leading financial services institutions.

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