Added David Vuchinich, senior portfolio manager at ING: "It's a pretty substantial information tool because you're able to see where a bond traded and where the inventory is, which makes the OTC nature of the market a lot easier to deal with."
Messrs. Vuchinich and Daniel run $28 billion to $30 billion in fixed income.
Mr. Vuchinich said the electronic trading systems allow him to handle a large number of small-lot trades in a short period of time, giving him the time to work larger, more difficult orders.
"It gives us the ability to put out 50 different offerings or bids wanted on $1 million or $2 million positions, like when we need to rebalance" a portfolio, he explained.
Sang Lee, managing partner of consulting firm Aite Group LLC, Boston, said he expects more than 60% of bond trading to be done electronically by 2008, compared with 35% in 2004 and just 2.6% at the end of 1998.
After a year of major activity in the electronic bond trading industry in 2004, this year is shaping up to be a defining one, not only for the trading firms, but also for the institutions that use them, particularly as competition heats up, Mr. Lee said.
Last year, the two big players that provide electronic trading services to institutional investors — TradeWeb LLC, Jersey City, N.J., and MarketAxess Holdings Inc., New York — underwent major changes. First, TradeWeb was acquired by Thomson Financial, a unit of Stamford, Conn.-based Thomson Corp., for $385 million to create Thomson TradeWeb. Then, MarketAxess completed an initial public offering.
Thomson TradeWeb's average daily trade volume is about $148 billion; Market Axess', $1.2 billion.
Thomson TradeWeb made its mark in the U.S. Treasury market and MarketAxess in the corporate bond sector, but both have been seeking to move into each other's key market as well as other areas. Thomson TradeWeb provides a platform to trade just about every type of fixed-income security except municipal bonds, while MarketAxess is expanding into some derivative fixed-income products like a trading platform for credit default swap indexes.
At Thomson TradeWeb, requests to interview James W. Toffey, chief executive officer, were ignored. But Rick McVey, chairman and CEO of MarketAxess, talked at length about the evolution of electronic fixed-income trading.
"The credit derivatives market is booming and as a result, the liquidity and turnover in credit default swaps is growing rapidly," Mr. McVey said.
"Index trading is making it very easy for investment managers to get exposure to a broad basket of credits through the CDS market, and the transaction costs are lower than if you were to try to create it through the corporate bond market," he said.