By 2008, 60% of all U.S. fixed-income trading will be electronic, up from around 35% today, according to a new report from Aite Group LLC, Boston.
Electronic fixed-income trading is dominated by the U.S. Treasury market, where an estimated 68% of volume was handled electronically as of Dec. 31 That compares with 30% of the volume in the mortgage-backed securities market and just 9% in the corporate bond market, according to the report.
But as electronic bond trading increases, the number of platforms is likely to continue to shrink from its peak of more than 70 in 2000. At the end of 2004, fewer than 30 electronic fixed-income platforms remained, and Sang Lee, a managing partner of Aite Group and author of the report, said he expects that number to decline to "only a handful" over the next 12 to 18 months.
"We've already seen a certain level of consolidation, and as different platforms move into each other's core (businesses), we're certainly going to see a shakeup," Mr. Lee said. There is room for a couple of strong players in each segment of the market, such as the single dealer or multi-dealer segments, he added.