Jim Greco's article, Corporate Bond Market Structure Evolution,
examines the evolution of corporate bond trading, particularly looking at dealers' constrained balance sheets and how this is impacting bond liquidity.
Against this backdrop, the market has gradually adopted e-trading.
Initially, electronic venues introduced alternative forms of liquidity, including MarketAxess developing a niche supporting odd-lots (this has since extended into larger sizes). And more recently, all-to-all trading has been launched by venues including MarketAxess and TradeWeb, with some success.
As ECN adoption has increased, electronic trading firms have emerged to become some of the top liquidity providers on the platforms. These firms have lower overheads than traditional dealers, which rely on humans to work inventories.
Jim summarises his article by saying -
"The corporate bond market has managed to so far avoid a potential crisis in liquidity brought upon by small dealer balance sheets, and it has done so in a unique way. In a decade the market structure has shifted from principal trading dominated by a couple dozen large banks into a burgeoning all-to-all market structure. Electronic platforms like MarketAxess, KCG BondPoint, TMC, and Tradeweb have displaced traditional voice trading. New liquidity providers, like Millennium Advisers, are able to compete with limited capital and salesforce. It is a time of rapid change in the marketplace and I am excited to see what the future holds."
To see the compete piece (its only a 7-minute read) https://medium.com/@jgreco/corporate-bond-market-s...