The electronification of fixed income trading continues unabated according to the most recent Sell-Side Fixed Income Expert Network Report, produced by Acuiti in association with valantic FSA. 

Over 75% of the Expert Network, a group of senior sell-side fixed income executives from across the globe, reported that flow to electronic trading platforms from their client base had increased during the first half of 2022, with over a quarter of the network pointing to a significant increase. 

Volume spikes and volatility over the last 12 months have led to continued changes in execution methods. Some 41% of respondents noted a shift in previous relationships between trade size and execution method, with larger trades executed by voice but smaller trades electronically. 

While the recent volatility has brought benefits to the sell-side in terms of higher trade volumes, many have faced significant operational challenges. Members of the Expert Network reported that the major operational pain points caused by volatility were seen in risk management and hedging. 

Some trading desks tended to revert to manual management of hedging during periods of volatility. This was driven by fear that firms’ automation of this function was not robust enough to keep the right hedging ratios in turbulent markets. 

Almost 60% of respondents said that clients were asking for more algorithms to use in their fixed income operations, and almost a third reported demand for algos used to hedge positions, reinforcing the drive towards hedging automation.