In addition to the traditional off-floor trading and the bond trading systems in place at stock exchanges, more and more electronic trading platforms have become established for bond trading in the last few years.

Development of electronic trading platforms

One not insignificant factor behind the development of electronic trading platforms was often the wish to save brokerage. Initially, in the 1990s, many platforms specialized only in benchmark-format sovereign bonds. But by not later than the year 2000, when the EuroCreditMTS platform became operational, Jumbo Pfandbriefe and Jumbo covered bonds were gradually also included.

The platforms are constantly being developed further. Today, many of them offer not only the traditional trading and settlement functions but also perform other value-added functions such as research, test trades, compliance services, risk management, etc. 

Inter-dealer (B2B) and customer models (B2C)

A distinction may be made between different forms of electronic trading platforms such as business to business models, inter-dealer systems and business to customer models; the third category comprises single and multiple dealer systems: 

B2B

Inter dealer systems support electronic trading between investment banks. Only market makers are admitted; investors may not participate in trading. Prior to admission, the participants usually have to enter into a written market maker commitment requiring them to quote prices for a minimum number of bonds.

Providers of inter-dealer systems are EuroCreditMTS and Eurex Bonds.

B2C

I. In the case of single dealer systems, investors have the possibility to carry out purchases and sales with a certain market maker. The investor has access to the dealer via special applications or the Internet. One example of a single dealer system is Deutsche Bank Autobahn, through which Deutsche Bank customers can engage in trading on the basis of prices quoted solely by Deutsche Bank .

II. In the case of multi dealer systems, the investor can trade on the basis of quotes provided by different dealers for one and the same bond. In many cases the system shows the investor the best bid and ask price for the bond in question. Furthermore, many systems enable the investor to ask individual dealers for a current quote in respect of a certain trading volume. These dealers are then bound by their quotes for a fixed period of time. Well-known examples of multi-dealer systems are Bloomberg and Reuters. In both cases, by using the respective applications package – besides the trading platform this means, above all, news, analysis and quoting tools – the investor can choose from the prices quoted by different market makers. A bilateral agreement with the individual market maker must be concluded in each case. Tradeweb is another electronic platform which belongs to this category.

III. Auction systems are a subcategory of the multi-dealer systems; they allow issuers to auction securities electronically.

Some platforms are only for primary market transactions, whereas others can also be used for auctions in the secondary market. In both cases, the seller or issuer is able to stipulate the parameters for the auction (e.g. price spread, opening of the trading book, single-/multiple-price orders, partial execution of orders, etc.). Investors can subsequently place bids.

One good example of an auction system is the trading platform BondVision, which belongs to the MTS Group. On such platforms, depending on the type of auction, allotments are made in favor of the highest prices or the lowest yields. Different systems have different disclosure policies. Whereas some platforms guarantee that bids remain anonymous, on other platforms the bidder, the size of his bid or his price are all disclosed. 

IV.  Cross-matching systems, investment banks and investors can electronically capture buy and sell orders for certain securities. These are usually multi dealer systems. The deal is executed automatically as soon as the system finds a match between a buy and a sell order.

In both cases there are joint liquidity pools for electronic trading and telephone brokerage. Thus, unlike with other systems, brokers’ fees are charged.

Links to a number of platforms with a European focus

Bloomberg Bond Trader (incl. Pfandbriefe/covered bonds):
http://www.bloomberg.com/ 

BondVision (incl. Pfandbriefe/covered bonds):
http://www.bondvision.net/new/content/about/company.php

BrokerTec:
http://www.icap.com

Deutsche Bank Autobahn (incl. Pfandbriefe/covered bonds):
https://www.autobahn.db.com

eSpeed:
http://www.espeed.com/

Eurex Bonds (incl. Pfandbriefe/covered bonds):
http://www.eurex-Bonds.com/

EuroCreditMTS (ausschließlich Pfandbriefe/covered bonds):
http://www.eurocreditmts.com/

MarketAxess (incl. Pfandbriefe/covered bonds):
http://www.marketaxess.com

Reuters (incl. Pfandbriefe/covered bonds):
http://www2.reuters.com/productinfo/tradingfi

Trade Web (incl. Pfandbriefe/covered bonds):
http://www.tradeweb.com/