European electronic trading will recover in 2010-12, says Celent
The share of electronic trading in buy side fixed income volumes and sell side electronic volumes declined in 2008, but in 2010-12 there will be a recovery in Europe as the economy improves and spreads tighten, according to a report from Celent, a Boston-based financial research and consulting firm.
According to the report, trading in the secondary market has suffered in the wake of the downturn. Government bond volumes are down around 20 to 30 per cent on their pre-downturn levels. Non-government bonds suffered much more, with trading levels down 70 to 80 per cent from their pre-credit crunch levels. However, both of these have recovered and should return to their pre-downturn levels in 2010.
Celent says different markets are opening up at differing rates, resulting in a lack of homogeneity. The UK and Germany have had relatively open markets for some time. In the last few years, countries such as France, Belgium, Austria, and the Netherlands have created a more equal playing field for the various IDB platforms through the removal of the primary dealer platform requirements that have for a long time benefited MTS. However, Italy, Spain, and Greece have been slow to open their markets to international competition. Celent says the fragmented nature of the clearing and settlement infrastructure of the European fixed income market is a clear barrier for increased liquidity and trading volume in these markets.
The report also says Mifid has driven the way business is conducted in the fixed income markets and that it should apply in theory to all asset classes. Trading platforms lobbying for freer competition have found that the Mifid regulation has been instrumental in changing the mind-set of the respective government bureaucracies with regard to the need for free competition. However, on the downside, Mifid has led many companies to shift from fixed income to best execution in the equity markets.
According to the report, the rise in multi-trader platforms has not fragmented liquidity. Technology has bypassed the problem through the development of aggregators which pull prices from across platforms and can offer the best prices on a single screen to the trader. Celent believes this is a strong argument in favour of liberalization of the markets.
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