Bloomberg survey shows automation among top drivers for APAC fixed income market growth

In the next two years, two of the biggest growth drivers for Asia Pacific’s US$5.9 trillion[1] fixed income market will be technology innovation in electronic trading and growth in wealth and asset management. The findings were from a sell-side fixed income survey conducted by WBR Insights on behalf of Bloomberg in September 2020. A hundred Chief Digital Officers, heads of digitization and senior fixed income market participants from banks and brokers in Australia, Hong Kong, Japan and Singapore participated in the survey.

Respondents rated technology innovation and buy-side demands equally in importance as trading technology continues to innovate, and fixed income investing in the region continues to increase. Bloomberg data showed that bond issuance across the region has increased to US$2.7 billion year-to-date vs US$2.5 billion in the same period last year. Compared to the same period in 2018, bond issuance was up 50% this year.

67% of respondents said their fixed income trading desks were planning to increase trades executed by automation by at least 30% in the next 12 months. COVID-19 will further catalyse the digitization of manual processes, with 46% of respondents stating that the pandemic will increase levels of automation in sell-side firms in the next 12 months.

Price discovery and safeguards ripe for automation
The survey identified that automation of price discovery will be a major focus in current trading workflows. Close to half of the respondents (44%) indicated that the price discovery process is ripe for automation, followed by retail/odd lot trading (41%), which are largely private wealth trades. The most important area of enhancement through automation is the safeguards in place to respond to market volatility, according to 40% of respondents.

“As the first step in the bond trading workflow, price discovery is often also the first to be automated as it helps investors make better choices. Retail/odd lot trades, common among private banks in the region, are also rule-based with enough electronic liquidity to tap into so being able to automate the trading and execution of these trades are natural next steps,” said Sunny Chhabria, Deputy Head of APAC, Bloomberg.

Increasing industry security in AI
About one-third of respondents said they are already in the process of building an AI team to implement new AI technology. Better industry security pricing composites was identified by 34% of respondents as being the area where AI technology can deliver the greatest benefit, such as improving post-trade performance benchmarking.

“The demand for automation in fixed income trading will continue to increase in the region as dealing desks face regulatory and cost pressures, and markets become increasingly complex and volatile,” added Mr Chhabria. “New technologies will continue to emerge to help traders become more efficient, allowing them to focus on trades they can add value to. We have been working with our clients to transition their high-touch business to a low-touch one, where transactions can be automatically processed through our system, including using natural language processing-powered capabilities.”

Bloomberg’s award-winning integrated sell-side offering includes the Trade Order Management Solutions TOMS and ETOMS for electronic market-making and price distribution, the Multi-Asset Risk System MARS, DASH Enterprise, an ML-driven analytics tool for salespeople, and the derivatives library DLIB, a cross-asset solution for pricing and risk management of structured products.

Click here to read the report Sell-side Fixed Income Trading in Asia: A Closer Look at Automation Technology. To find out more about Bloomberg’s natural language processing capabilities for the fixed income trading market, click here.

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