BlackRock, AllianceBernstein Want All Bond Trading to Be Electronic by Year End

January 12, 2018 — 1:48 PM EST

With fragmentation in the corporate debt investing market, BlackRock, Inc. (BLK) and AllianceBernstein Holding L.P. (AB) are turning more to electronic trading to create increased liquidity. Citing comments by executives from both firms made at the first meeting of the U.S. Securities and Exchange Commission's Fixed Income Market Structure Advisory Committee, Reuters reported that the goal is to have every trade done electronically by the end of 2018.

Jim Switzer, global head of credit trading at AllianceBernstein, said that, while traders can still use the phone to place trades, all trades will be processed electronically, Reuters reported. Switzer argued that having all transactions processed electronically will give AllianceBernstein a clearer idea of the liquidity available in the market. The executive noted that AllianceBernstein receives roughly 3 million unique trading messages each day, and being able to pull that information together is important, particularly as volatility starts to creep up. "How do you have a trading desk ... of four guys with eight eyes that can look at 3 million messages and actually make any sense in rapidly changing and dynamic markets? That's where we're headed," Switzer said, according to Reuters.

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BlackRock also signaled that it wants all of its bond trades to be processed electronically, with Richie Prager, head of trading, liquidity and investments platform at the firm, saying that around two-thirds of corporate debt trades happen electronically, reported Reuters. On a volume basis, Prager noted that this figure declines to around 30% because of large block trades that are done via phone.

Liquidity concerns when it comes to the corporate bond market have been going on ever since the financial crisis, when big banks had to pull back on their bond dealing because of new rules that made it more expensive. Electronic trading platforms filled the void. Liquidity concerns coupled with rising interest rates in the U.S. are driving the move to electronic trading and automation, reported Reuters, as investment firms bet that technology will make the market more transparent.

The push to make corporate bond trading electronic comes at a time when The Charles Schwab Corporation (SCHW) is warning that the market may not be as hot as it was in 2017. Collin Martin, senior fixed-income research analyst at Schwab Center for Financial Research, recently said that the price appreciation in corporate bonds this year is unlikely to continue, leaving income payments as the driver of 2018 total returns. "With relative valuations so high and the potential for yields to move modestly higher as the Federal Reserve continues to raise interest rates, we think things will look different in 2018. In particular, the price appreciation we saw in 2017 is unlikely to continue." (For more about this discount brokerage, check out the Charles Schwab review.)