* Asian issuance at record levels, but turnover tight
* Growth will be led by e-trading, not trading jobs
* Competition between multi-dealer vs single-party platforms
By Saikat Chatterjee
HONG KONG, Dec 11 A latecomer to electronic bond
trading, Asia is now catching up to the rest of the world as
falling trading volumes and increased regulatory requirements
put the squeeze on bank trading desks, even as new issues soar
to record highs.
Nearly half of Asian dollar-denominated corporate debt is
now traded electronically on platforms offered by major banks
and other market participants, from nothing four years ago.
While there will always be a need for experienced hands as
Asian bond markets deepen, the shift to electronic trading will
further rationalise an already concentrated market -- the top 6
firms control more than half of global fixed income turnover --
as second-tier players exit or pare back operations.
JP Morgan, a top-tier bond trading house, is a case
in point. Shankar Hari, head of fixed-income structuring & FX
products, Asia ex-Japan says while the bank has "incrementally
added traders and sales people", the focus is on its electronic
"We realise this is the only way forward and with the new
regulations coming, we should be in a position to increase
market share," Hari said.
The push to e-trading efficiency ahead of hiring more
traders is driven by a harsh reality: Deutsche Bank says global
investment banking revenue will fall to $240 billion this year,
down by a third from 2009.
It's not that the supply of bonds is drying up -- Asian
issuers have sold nearly $132 billion in international markets
so far this year, a record that dwarfs the $76 billion issued in
But as big bond investors such as pension funds and insurers
have grown increasingly worried about counterparty and market
risks, they have hoarded their securities rather than loaning
them to banks, draining trading liquidity.
Combined with stricter regulatory requirements in the form
of Basel III and proprietary trading restrictions, market-making
has only got costlier in a shrinking market. Research firm
Celent estimates the cost of trading cash credit under the Basel
III reforms for big investment banks has nearly doubled.
In October, UBS said it was axing 10,000 jobs and
closing its global fixed income business..
"Electronic trading in Asian fixed income markets is set to
grow even as the broader market becomes more concentrated in the
shakeout," said Abhi Shroff, principal at Greenwich Associates,
a financial research and consulting business.
One largely untapped sector in Asia is government debt.
Electronic trading in South Korea and Japan has a market share
in the early teens, according to various estimates, with
Singapore and Hong Kong among the markets next in line for
In contrast, nearly half of the European government debt
market and more than 80 percent of U.S. Treasuries are traded
Greenwich's Shroff says his firm's annual survey of more
than 1,000 market participants in Asia-ex Japan also shows great
interest in online trading trends in local currency bonds.
That potential in Asia has sparked a rush to secure market
share through either single-dealer, where someone wanting to buy
a bond deals directly with a bank, or multi-party platforms,
which throw a bid out into a pool of dealers, banks and brokers.
Most of the top-tier bond trading houses such as Goldman
Sachs, Deutsche Bank and JP Morgan have their
own e-platforms. Blackrock, one of the largest money managers,
offers trading on its new platform.
Thomson Reuters and rival Bloomberg LP, which
compete in providing financial news and information, have
platforms, along with other players such as MarketAxess and
Single-dealer platforms have been less successful in debt
than for FX or equity trading, where products are more
homogenous and can be structured for clients. The sheer number
of bonds makes it very difficult for even a global bank to hold
Further aiding multi-party platforms, some regulations
require fund managers in pension funds and insurers to seek a
number of quotes before entering a trade.
"Asia is like a coiled spring. When bond markets open up
completely to foreign investors, there will be tremendous
growth," JP Morgan's Hari said.