Electronic Fixed-Income Trading in the U.S.: Time for Another Round of Consolidation?

By 2008, Aite Group expects electronic trading to account for over 60% of total U.S fixed-income trading volume, as leading platforms continue to expand into less liquid products, improve price transparency, and provide high levels of STP capability.

Boston, MA, June, 2005 - According to a new report by Aite Group, LLC, electronic fixed-income trading continues to gain rapid adoption in the U.S market. Competition is expanding into: 1) less liquid fixed-income products; 2) the European market; 3) algorithmic trading; and 4) OTC derivatives products, including interest rate swaps and credit derivatives.

At the same time, we have seen a massive contraction of the marketplace from its peak in 2000, when over 70 electronic fixed-income trading platforms existed, to less than 30 platforms remaining at the end of 2004. Realistically speaking, only a handful of those remaining electronic trading platforms can be considered legitimate platforms.

To date, most of the electronic trading activities have taken place in U.S. Treasuries. Aite Group estimates that approximately 68% of U.S. Treasuries trading was conducted electronically by the end of 2004. The MBS market was a distant second, with 30% penetration. The corporate bond market currently stands at 9%, with enormous growth potential, as MarketAxess and Thomson TradeWeb compete for additional market share.

This report examines the evolving competition within the U.S. electronic fixed-income market, identifies key market trends, and analyzes the prospects of the following platforms: BondDesk, eSpeed, ICAP, MarketAxess, TheMuniCenter, and Thomson TradeWeb.

According to Sang Lee, Managing Partner of Aite Group, and author of the report, "We expect to see heightened competition in the ebond market, driven by both geographic and product expansion, algorithmic trading, and improved STP services." Lee also adds, "Potential for further market consolidation will continue to exist, as both inter-dealer and multi-dealer platforms look to solidify their competitive positions in a rapidly growing marketplace."

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