Facing the Future: The Growth of Automation in Fixed Income Trading in Asia-Pacific

How can automation improve fixed income trading strategies and best execution? In a recent Asia Risk webinar, in partnership with Tradeweb, a panel of market experts discussed the prospects for automation in the commercial space

Automation has become an increasingly powerful way to deal with increased complexity, as electronic trading activity has grown in markets such as stocks, currencies and, more recently, securities. fixed income. As the trend towards greater automation has started on trading desks in Europe and the we, it is also accelerating in Asia as more traders in the region embrace automated solutions and electronic workflows.

In a webinar hosted by Asia risk and Tradeweb, panelists from the buy and sell sides, as well as technology and platform providers, discussed the reasons for the rise of automation and how it can improve trading strategies and their better execution.

Automate the life cycle of exchanges

The transaction lifecycle can benefit from automation at every stage, whether in building the portfolio, managing fund flows and aggregating data in the pre-trade phase, or finding how to route and execute a transaction in the most efficient and effective manner.

“From a post-trade perspective, there are a lot of coins [that could be automated] – direct processing, application of transaction cost analysis [TCA] or analytics, ”said Joram Siegel, Managing Director and Head of Outsourced Fixed Income Operations at Cowen. “There really is a wide range of opportunities to automate different parts of the commerce lifecycle. “

The advantages of automated trading include overall efficiency, tighter markets, and faster response times on the seller’s side. It can also help book trades faster and simplify back-end trading processes. In this way, automation frees traders for more complex transactions that benefit from greater human attention and expertise.

Evolution driven by electronization

Automation has become an invaluable tool in meeting trading needs as the electronic trading business has grown. “In Europe, we have seen strong growth, first in electronic trading and then gradually in automated trading. [for the first half of the 2010s]”said Viktor Östebo, Managing Director and Head of Institutional Trading, Asia Pacific (Apac), at Flow Traders. According to the Bank for International Settlements, between 2010 and 2014, daily trading volumes for most income instruments landlines on electronic platforms increased by around 40%. Electronic commerce has grown steadily since, fueled more recently by the impact of the Covid-19 pandemic. we in the corporate bond market, e-commerce has grown by more than 100%, and in Europe this activity has increased by 61% between 2017 and 2020, according to figures from the Greenwich Coalition. Östebo continued: “My experience in the Apac region is that we are only beginning to scratch the surface of what is possible in terms of electronification, the second step being automation. “

As markets develop, the automation of trading activities should not replace traders, but rather improve their ability to navigate an increasingly complex market. And, while there is always a certain percentage of high-impact versus low-impact trading in most markets, organizations should be aware of how this ratio might change.

Laurent Ischi, Tradeweb

“The electronization of trading certainly does not mean that there is no longer a high-touch or a low-touch, even if we have seen a separation of the two with the right level of automation required for each”, confirmed Laurent Ischi, Automated Intelligent Execution Product Development (AiEX), Asia, at Tradeweb. In many fixed income markets and exchange traded funds (AND Fs) trading, organizations are moving towards contactless workflows, but the degree to which this occurs generally depends on the asset class. “We have tried to find the right degree of automation for the right type of instruments with our customers,” he continues. “It also depends on where the business is in its workflow automation journey.”

Requirements can range from contactless workflows for highly liquid instruments – where the trader doesn’t even have to trade individual tickets – to those where only reseller selection or submission of requests for quotes is automated. Again, the degree of automation differs from market to market: for those with more systematic activity, transaction automation creates much-needed efficiency gains. “A manual trading desk can handle 20 tickets per trader per day but, once that starts to increase, the number of traders must also increase,” Ischi said. “What we often see happening now is that businesses will look at automation opportunities instead, in order to free traders.”

Meeting technological challenges

In Apac, there is still a long way to go before electronization has the same ripple effect on the demand for automation, according to the panelists. “In the markets in which we are active in Europe, the activity is probably 98% if not 99% electronic,” said stebo. “In Apac it’s obviously less but nothing is preventing the same development in terms of technology or risk frameworks – on the sell side we are ready … We hope that the buy side will become more engaged and interested.”

There are of course initial investment costs in setting up automated systems. This may cause some buy-side companies to refrain from the implementation, at least initially. However, general technological advancements in this region are starting to make automated trading more attractive. “More and more organizations are using standardized or larger-scale order management or fulfillment management systems,” Ischi said. “This drastically reduces technology costs, as most of the connectivity will be out of the box. “

Improve sales relationships

Some organizations are also turning to outsourced solutions to solve this cost problem. This gives access to a wider range of markets and a technology stack that enables the use of automation tools. “[The electronification of the markets] has created many new trading protocols, the ability to access liquidity electronically and the proliferation of many trading platforms and ECNs [electronic communication networks]”said Siegel.” While large companies may have the [in‑house] the scope and resources required to use the technology, this is not the case for all companies.

Fears about more information dissemination could also be a source of reluctance for buy-side companies in Asia to automate, according to James Hullah, vice president of fixed income operations at AllianceBernstein. “With an electronic platform, more sales-side organizations see your orders. I think the concerns about frontrunning made Asian organizations a little hesitant as a result, ”he explains.

Some buy-side companies may also be concerned about the potential impact on long-standing relationships of offering business to a larger panel of dealers via an electronic platform. “For example, some businesses may be concerned about getting a certain level of service from preferred resellers for more touch-sensitive transactions,” Hullah said. “But electronic trading actually allows you to see more of the community of sellers, especially those who specialize in certain segments. You can improve your TCA Therefore.”

Automating AND F trade

Automation is also increasing for certain types of instruments, according to the panelists. For example, the level of electronic trading in the AND F space makes this type of product a very obvious use case for automation. In October 2021, for example, automation AND F transactions on Tradeweb platforms reached 76% for the European Union AND Fs (data for European markets in proportion to “in comp” transactions). “For AND Fs, adoption has been massive in terms of e-commerce, ”Ischi said. “In Europe, on sites like Tradeweb, this activity has grown quite significantly, and we expect that over time the same will happen in Asia.”

Automated trading is particularly useful in rapidly changing markets such as AND Fs, or any other with continuous price updates. This was reflected in responses to a survey question posed during the webinar, which asked attendees to rank the appropriate markets for automation. Developed Market Rates (we Treasury / European government bonds) were considered the most suitable, followed by listed companies in Asia AND Fs.


Indeed, electronization and automation could allay some of the concerns about the liquidity of Asian listed markets. AND Fs, according to stebo. “From a trading and execution perspective, there is a huge implementation gap if you wait for execution for 12-18 hours. [because of the time difference with other markets], “he said.” But electronization and platforms can actually solve this problem through automated trading, “

Next steps

For those who decide to automate negotiation processes, panelists think the next logical question would be: to what extent? “It’s not just about what you automate, it’s how you do it,” Ischi said. “Find something you’re already trading that is relatively easy and modest in size, automate it and understand how it works, then develop it from there. Start small in a liquid market and grow from there in terms of deal size and product line. “

It is also important to view automated systems as evolving entities. “At Tradeweb, we have regular conversations with clients using our automated AiEX solution to see how it works and how we can help them tap into other markets,” added Ischi. Everything an organization could start with will change over time as the markets and the business grow.

And, once organizations take this step, they are unlikely to turn back. “Once you start trading electronically, you really don’t go back to voice trading, unless it’s for high pressure execution – this is where a trader can now add the most value.” AllianceBernstein’s Hullah said. “I think buyers can really support the creation of their own algorithms and the use of automated tools already prevalent in other markets such as stocks and FX. “

The degree to which organizations choose to automate will depend on the instrument, the market and the company itself, but the trend towards automated trading will continue, according to the webinar panelists. With electrification continuing at a rapid pace in Apac, it is clear that the fixed income trading desk of the future will involve automation as standard practice.

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