Best execution in fixed income through AI

19 July 2017 in THE BOND MARKET by Tim Binnington

To achieve best execution in fixed income, artificial intelligence tools are being developed that can interpret massive data sets. Dan Barnes reports.

Best Execution , July 16, 2017

Like the ‘Bionic Man’, fixed income traders are being rebuilt through the smart application of technology. While there are truly automated chunks of the fixed business – 60% of volume in some liquid government bond markets is provided by high-frequency trading (HFT) firms – these are the exception rather than the rule.

For most bonds, parts of the trading process are having smart technology applied to them. Allowing traders to automate the more laborious portions of their work can reduce the complexity of market fragmentation and instrument breadth. Crunching data can create new pictures of the market. For example, as new trading venues are launched, their match rate for orders can be checked. Brokers’ order fills for the end of the quarter, when many perform poorly, can be reconciled against past performance. Buyside trading desks can qualify performance and reflect that in how they trade.

The starting point is to pull data together with as much detail as possible. That information can be used to support decision-making tools on the trading desk.

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