Due to the ongoing low interest-rate policy and changes to regulatory and technological framework conditions, the bond market is characterised by decreasing liquidity and increasing fragmentation.
This adds complexity to the price discovery and hence price and trading quality. Nevertheless, debt instrument investors expect attractive and tradable prices - without restrictions of the product universe on offer. To take better account of these customer demands, Boerse Stuttgart has now incorporated instant trading for bonds in its hybrid market model.
So how does instant trading work? The investor uses the online template to request a price from Boerse Stuttgart for the order volume he or she wants. Trading experts then provide an up-to-date indicative price quote for the investor’s specific request. ‘They take into account not only the orders in the central order book and the current market condition, but also the liquidity generally available on the overall market,’ says Michael Görgens, Managing Director of Fixed Income and ETF Trading at Boerse Stuttgart. By one click, investors can now submit their orders directly within a fixed time frame and can expect these to be fully executed without partial execution in the desired volumes and at least at the price indicated. If an order cannot be fully executed in near time, it will be automatically deleted. In both cases, the investor receives immediate notification. ‘As a result this means that the investor uses an individual price request option, and moreover benefits from the established advantages of the hybrid market model, an enhanced price and trading quality and a very high probability of execution,’ explains the Head of Fixed Income and ETF Trading.
Instant trading offers investors a direct control over whether an order has been executed or not. ‘Especially for large order volumes and in consideration of the high percentage of relatively illiquid corporate bonds, instant trading is particularly valuable for investors, because they can also enter requests when they need more than the liquidity indicated,’ says Michael Görgens.
Finally instant trading ensures that private investors are treated on a par with institutional investors again because, from a customer perspective, it is very similar to the request-for-quote protocols service used in the bond market. The option for investors to interact directly with Boerse Stuttgart improves the probability that the customer’s order will be executed and therefore increases customer satisfaction. Regardless of the type of debt instrument involved, instant trading will be provided for all bonds listed in Stuttgart, which number around 14,500.
Instant trading on Boerse Stuttgart is based on the fill-or-kill order type and is already available for equities, securitised derivatives, exchange-traded products and investment fund units. The service feature is currently available through the online brokers Flatex and ViTrade. It will be extended gradually to include other online banks.