BofA's investment in e-trading for bonds is paying off

Electronic fixed-income trading volumes are picking up in Europe as industry competition to innovate heats up, according to Bank of America Corp.

Portfolio trading and derivatives — two areas where the bank is investing — have seen rapid growth, said Sonali Theisen, its global head of e-trading for fixed income, currency and commodities, in an interview. That’s reflected in the volumes Bank of America is handling, she said.

Banks are rushing to make their bond trading offering more electronic, after the asset class has long lagged the technological advancement seen in equities. Buy-side clients, facing competition from electronic market-makers such as Jane Street and Citadel Securities, are driving this momentum in a search for cheaper and faster execution.

“It continues to be an arms race,” said New-York based Theisen, also the bank’s head of markets strategic investments. “Electronification is a massive area of focus and we will continue to invest year-over-year.”

Bank of America’s volumes of European investment-grade portfolio trading — which allows investors to buy and sell large lots of different bonds at once — have increased five-fold in the first half of 2024, she said. Meanwhile electronic FX swaps have grown over ten percentage points, and electronic euro interest-rate swaps have also increased by several percentage points.

The US bank’s investment has been equally focused on both sides of the Atlantic but the pace of e-trading growth has been particularly noteworthy in the euro area, Theisen said.

The European portfolio trading market is still smaller than in the US, where the technique for moving big bundles of securities in one go accounts for around 11% of all US credit trading volume, according to MarketAxess. In Europe, Tradeweb says there is no comparable data without a TRACE equivalent, the system through which the US has been aggregating bond price data for years. 

Europe is pushing to unify data generated from its fragmented bond trading venues into a single real-time price feed — called consolidated tape — in a bid to be more competitive on the global stage. Plans to bring greater data transparency to Europe through this consolidated tape will be key for the region to catch up, according to Theisen.

Bank of America finds the proportion of corporate bonds that its algorithms can automatically quote prices for is roughly three times more in the US than in Europe, with European sovereign bonds also lagging US Treasuries by around 10 percentage points.

“The transparency forthcoming in Europe through a consolidated tape should help the algorithms become smarter and also benefit the FICC ETF complex,” she said, referring to fixed income exchange-traded funds. “We’re moving in the right direction in EMEA electronification, and the next leg of the journey is a consolidated tape.”