The “New Normal” for Asian Markets Trading

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Two weeks ago, I hosted our first ever webinar focusing on the Asian markets. Much of my presentation centered around what we call the “New Normal,” or structural changes that have taken place in the regional fixed income trading markets over the past few months during the COVID-19 outbreak. 

As I pointed out in the session, right now changes in the markets are happening at astonishing pace and, just like the 2008 Financial Crisis, we expect some of these changes to transform forever the way our clients and we do business.

Key trends we’re observing in the Asia markets which we believe will remain:

  1. Acceleration in the overall adoption of electronic trading with increased cost savings
  2. Local markets liquidity resiliency despite turbulent market conditions
  3. 40% jump in buy-side firms providing liquidity anonymously via Open Trading™ – client becomes dealer 

Over the past few months we have had two major events– the COVID-19 global pandemic and the negative oil price shock that brought significant increases in volatility and risks to the market. With the outlook being more uncertain, investors are seeking every possible way to bring cost down and electronic trading has done just that. We have witnessed significant cost savings for our clients in these times of market volatility based on our trading data - 85 cents on the dollar per trade, compared with 20 to 25 cents pre-crisis.

We have also seen an increasing outflow from emerging market assets as investors look to de-risk their portfolio. This in turns pushes them to seek out access to biggest liquidity pool, mainly when the dealers gradually step back given the uncertain market conditions and the related risks on their balance sheets. This is shown by the +31% year-on-year increase in unique platform clients, the +40% Open Trading penetration in EM (31% in Asia) during Q1 and the nearly four-fold increase in Asia debt trading done by Asian clients on our platform in the first quarter - $12.4 billion, +291% YOY.

But perhaps the most significant development has been the blurring lines between clients and dealers.  What we have observed on our Open Trading network is that dealers who have traditionally been providing liquidity to clients are now taking liquidity through Open Trading to complement their market making mandate. In Q1 the number of dealers taking liquidity jumped 258%.

And the switching isn’t just happening on one side. Clients who have been using broker-dealers as liquidity providers are also clearly changing their behavior by providing liquidity – we have registered +40% increase in client contribution in Q1. The industry truly came together to create liquidity and preserve the efficient functioning of the market. 

What does this mean for our clients?

In light of these trends, we have adapted our technology to fit our clients’ needs and these enhancements include the launch of Switch Trading for Local Markets and Crossing in hard currency emerging markets. The former allows the buying or selling of two securities in one package where one dealer takes it all, while the latter enables clients to transfer bonds from one portfolio to another at a specified mid-price. All these upgrades bring significant cost and trading benefits to both sides of the transactions.

These enhancements are fed by our unique trading data suite which includes Composite+™, our award-winning AI-based price engine that has now become an industry standard for indicating where bonds are transacting ahead of time, and AxessAll which provides insights into the most traded bonds and related volumes. 

If you'd like to hear the full webinar presentation, you'll be able to access the replay by clicking the link below.