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Online derivatives trading platforms rocket in 2004 - BMA

08 December 2004  |  3508 views  |  0 BMA

The number of online derivative trading systems almost doubled in 2004 from a year ago in Europe and the US, but the overall number of electronic bond platforms declined, according to a survey conducted by the Bond Markets Assocaition (BMA).

The BMA's annual survey of online dealing systems found that 25 platforms operating in Europe and the US allow users to execute online transactions in derivatives - including interest rate swaps, credit default swaps, futures and options - an increase from 13 systems available for derivatives in 2003.

Commenting on the results, Matt Frymier, member of the Association's Technology Committee and principal at Bank of America, says: "Derivatives are simply the next step in the evolution of online trading and build on the success that treasuries and other cash-based products have had in the electronic markets."

Frymier predicts that increasing volumes and greater standardisation will also help drive adoption of online trading in these markets.

Interest rate swaps and futures trading were among the most popular derivatives products supported by online platform vendors in 2004. BMA says a number of respondents expect further growth in online derivatives trading in 2005 as demand increases and as platform vendors add the service and customers become more accustomed to electronic execution.

But the survey found that the number of electronic trading systems for fixed-income securities has fallen to 74 from 77 in 2003. The number peaked at 81 in 2002. BMA says the decline is due to industry consolidation and high-profile mergers forcing some smaller players out of the market.

Michael Decker, senior vice president at the association, says: "The trend of consolidation continued in 2004, highlighted by mergers among fixed-income trading platform vendors, and between platform vendors and market data and news providers."

According to the survey, online bond trading systems will continue to develop and evolve in 2005 as vendors enhance their offerings with value-added services - including historical pricing data, analytics, research, matching services and order management.

Respondents also expect and increase in the number of straight-through processing (STP) services, which allow users to clear and settle trades on one system. Real-time trade data in US corporate and municipal bond markets will help boost liquidity, reduce transaction cost and promote electronic trading in, while program trading in fixed-income markets will gain a stronger foothold.

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