Danish multi-asset brokerage Saxo Bank has announced the launch date for a new solution to trade bonds electronically. Clients of the company now have access to a superior electronic trading environment looking to capitalize on the opportunities of trading numerous bonds at substantially lower costs.
Saxo Bank’s solution is tapping into a pool of about 40 liquidity providers in the largest asset class in the world with the bond market currently estimated to be worth over $100 trillion. Fixed income has typically been outside of the reach of smaller investors, and Saxo Bank is effectively democratizing a market that has been widely considered to be strictly institutional territory.
The first truly digital trading solution for corporate and government bonds is rolling out with access to over 5,000 investment grade and high yield corporate and government bonds spread across the globe and denominated in more than 20 different currencies.
The solution will become available to clients in October via the SaxoTraderGO trading platform.
Democratization of Fixed Income Trading
Bond markets have typically been associated with complex dealing desks which still use a lot of voice communication when dealing with order flow. The typical setting for a bond trade currently requires a ‘request for quote’ process. After the quote is delivered from a relatively small amount of dealers or even a single bank, the order is processed for execution.
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While bigger institutions have been dealing with electronic trading platforms for bonds for a while, smaller institutional and large retail investors have been largely left out of the market.
Saxo Bank’s solution is aiming to bridge the gap in this market and deliver a more direct, competitive, transparent, and efficient approach to fixed income trading. Single bond orders are channeled onto the market via an optimized dealer auction process to 40 of the largest bond liquidity providers.
New Layer of Transparency in an Old School Market
Unlike in a typical bond trading environment, most of the trades are executed within seconds with clients being handed substantial cost savings because of the multi-dealer environment where the trades are executed.
Saxo Bank states that based on its preliminary observations its fully digital fixed income trading solution allows for an average price improvement of 30 basis points for corporate bonds and 5-10 basis points for government bonds.
Commenting on the launch, the CEO and co-founder of Saxo Bank, Kim Fournais, said: “It is hard to imagine a market which is more ripe for disruption than the bond market. Watching a bond trader trade over the phone, at a time when the internet has touched almost every area of financial markets, not to mention our lives, is a clear call for disruption.”
“Investors need to ask themselves if they want to continue to trade based on an indicative price from a single bank or if they want to get the best price available from more than 40 global bonds providers, including some of the largest global banks,” he explained.
In addition to the cost savings, Saxo Bank’s solution is delivering a new layer of transparency into the market, a change which should be welcomed by global regulators. Saxo Bank is going to be charging a commission to its clients, an advance which contrasts with the fixed income trading industry’s approach to use a spread based system.