Yieldbroker’s electronic markets offer significant benefits, compared with traditional over-the-counter trading:
- Transparency of pricing gives effective pre-trade price discovery
- Efficient, competitive trade execution delivers better pricing
- Automation of pre-trade and post-trade data processing reduces the risk of re-keying error and streamlines settlement procedures – reducing costs
- Ticketing, trade confirmation and allocation functionalities help to avoid errors in reconciliation and settlement
- Comprehensive documentation of trading process enhances compliance and regulatory oversight
While most financial markets including equities, commodities and futures have switched to electronic trading, globally debt securities and interest rate derivatives remain over-the-counter (OTC) markets – where many transactions are still made over the phone.
Each year this is changing with an increasing percentage of bonds, bank bills and interest rate derivatives transactions occurring in electronic markets. The compelling advantages of online trading make it inevitable that all debt markets will move to more fully embrace electronic exchanges.
The primary advantage is the reduced cost of transactions for all concerned. Speed and the certainty of electronic pricing and execution, together with the thoroughness of data capture, are also superior.
Electronic markets have the benefit of entering trading information once only, and needing no human interaction through the trade, settlement, data capture and compliance procedures that follow.
Every step of the process can be automated and every detail in the data trail recorded, monitored and evaluated.
“Transacting through electronic markets mitigates risks over the life-cycle of a trade; reducing information risk, execution risk, settlement risk and compliance risk.”
These aspects are persuasive for not only traders but also risk managers and regulators who now place greater emphasis on risk management, compliance and regulatory oversight, following the global financial crisis (GFC).
The increasing complexity and sophistication of debt markets means that transparency is becoming a critical issue for both traders and regulators. Electronic markets offer full transparency – the ability for all involved to find out the price of securities, know the direction of markets, volumes being traded and other information.
An electronic exchange opens trading to more buyers and sellers, making it easier for institutions to trade with one another, no matter where they are located. This delivers greater liquidity, a critical factor in improving competitiveness and the efficiency of markets.
More competition, liquidity and transparency delivers tighter spreads (the difference between the best buying and selling prices being quoted) on an electronic exchange.
In Australia, Yieldbroker pioneered the move from the opaque world of one-to-one trading over the telephone to an electronic marketplace for a full suite of interest rate (or debt) securities – everything from Australian government bonds to risk-reducing debt derivatives such as overnight indexed swaps. Yieldbroker was established in 1999 and is owned by major banks dedicated to improving efficiency in this arena of trading.
Its markets offer pricing in more than 800 interest rate securities, with unrivalled liquidity and competitive pricing. In continuing to introduce improvements and efficiencies, Yieldbroker is helping to lift competition in Australia’s financial markets – which, in turn, improves the country’s overall international competitiveness.
Financial trading has come a long way from the hand signals, chalk and telephone of earlier trading systems. The future destination is straight-through processing (STP), where most functions are streamlined and automated.
“The aim is to gain transactional efficiencies that reduce the incremental cost of trades as close to zero as possible.”
This way, increased trading volumes don’t lead to significantly increased costs.
Aiding institutions in their STP quest, Yieldbroker’s platform sets a high standard in connectivity between order management, post-trade, risk management and settlement systems.
Yieldbroker is actively working towards STP solutions with our clients. We also recognise that client STP requirements vary greatly so we offer a variety of pre-trade and post-trade functionalities that provide various degrees of assistance in the automation of settlement and accounting processes.