Categorizing corporate bond trades based on the method of execution and other factors is no longer a matter of semantics.
Based on conversations over the past year with some of the most important market participants in the corporate bond ecosystem, a new report from Greenwich Associates examines why segmenting trading is so important, how that importance differs by market participant, both sides of each major open debate and a proposed framework for defining fixed-income trades going forward.
“While it is fair to say that some of this is just semantics that market structure nerds like us love to examine, there are real implications (a.k.a. dollars at stake) for how trades are categorized and counted,” says Kevin McPartland, Head of Research in Greenwich Associates Market Structure and Technology group and author of All Electronic Trading is Not Created Equal: Proposing Standards and Exploring Issues with Corporate Bond Reporting. “But why these metrics matter and how much they matter vary for different market participants.”
Proposed Trade Taxonomy
Greenwich Associates proposes trade reporting standards to provide dealers, buy side traders and equity investors with a universal method of categorizing, reporting and comparing corporate bond trades. These standards were developed over months of conversation with CEOs, strategists, traders, investors, and market structure experts from every major trading platform, as well as major bond dealers, nonbank liquidity providers, asset managers, hedge funds, and regulators.
Using these standards as a guideline, nearly every U.S. corporate bond trade can be defined by assigning one value from each of the four categories: counterparty interaction, trade type, electronic and protocol. Such an approach will allow investors to better understand where liquidity exists, dealers to better understand how their clients prefer to trade and equity investors to better understand the growth potential of specific trading workflows.
“We understand this is not the final word on the issue, and there will be areas of overlap and points on which different market participants will disagree,” says Kevin McPartland. “But the market will benefit from a clear set of standards, and we hope these findings will help drive the conversation forward.”