European bond market will usher in a "data revolution", new regulations may ignite a new wave of electronic trading

Major banks on Wall Street believe that the quality and accessibility of European bond market data could drive a new wave of growth in electronic trading. JPMorgan Chase, Bank of America, and Morgan Stanley stated that new regulations require more detailed reporting of bond trades and the establishment of a data pool to track real-time market activity, which will increase transparency and improve computer-based trading models. Ruchi Gawri, head of Morgan Stanley's European interest rate sales, product, and market structure department, said, "This will 'help change the way we think about bond trading.' It will be a key driver of growth in electronic trading." Revised standards for post-trade bond reporting will take effect on December 1st in the UK and on March 2nd in the EU. Subsequently, two comprehensive bond record systems will be introducedone for the UK and one for the EU. Bank representatives made these statements at the annual Fixed Income Industry Conference held in Amsterdam. Bank of America estimates that real-time transparency for corporate bond trading volume in the UK and EU will increase from the current 3% and 23% to 84% and 88%, respectively. For sovereign bonds, this ratio in the UK and EU will increase from 37% and 83% to 75% and 96%, respectively. Kate Finlayson, head of global fixed income, foreign exchange, and commodities market structure and liquidity strategy at JPMorgan Chase, said, "Data may be a crucial prerequisite for further electronicization. It helps build trading models and algorithms. Post-trade, data is also necessary to assess algorithm performance." Compared to the US, the adoption of certain algorithm strategies in the European bond market has been slower. In the US, bond trade data has long been integrated through the TRACE system. "We've seen a lot of innovation, but sometimes it feels like trudging through thick syrup, especially in this area," said Gareth Coltman, head of trading products for MarketAxess in Europe, the Middle East, and Asia-Pacific. "Accurate data retrieval is crucial." Although higher quality bond data will improve efficiency, it may also erode bank profits. In the US, after the introduction of the TRACE system, bid-ask spreads between trading parties narrowed, reducing annual trading costs for investors by nearly $1 billion. Within the buyer's camp, there are also concerns about the implications of decreased roles for human traders. Karim Awenat, head of macro trading for Europe, the Middle East, and Asia-Pacific at Schroders, stated that automated technology has led to understaffing in trading departments. He said, "There is indeed some room for optimization and improvement, which can reduce some careless errors. But in all honesty, it is being used as a 'stick' to drive traders to generate more returns with less effort. Automation and electronicization have gone too far." However, it may take some time for the integrated bond data set to be put into use. Bond data in the UK has been delayed due to legal challenges to the screening process by the Financial Conduct Authority (FCA), while the EU's initiative is awaiting authorization and has not yet announced a release date. In recent years, the fixed income market structure has undergone significant changes, thanks to the rise of exchange-traded funds, increased portfolio trading, and the growth of non-bank liquidity providers. However, due to the lack of a centralized trading platform and the prevalence of quote-based trading, voice trading still remains important. David Camara Iniesta, head of fixed income, foreign exchange, and commodities trading and market structure in Europe, the Middle East, and Africa at Bank of America, believes that the development of a unified bond trading record system in the region will be a vital driving factor. He said, "Clean data will be a major changer, especially with the use of artificial intelligence technology. We no longer need to write code to extract data from systems."