The 20-year evolution of Australia’s electronic markets
The financial markets have been transforming the business world ever since the first known interest-bearing loan - a 4300 year-old tablet that was discovered at Nippur in Mesopotamia. This guaranteed the payment of grain as interest, as corn was the currency of those times.
Over the centuries, markets have gradually yet significantly evolved to adapt to changing technologies, business environments and consumer behaviours. Arguably, the biggest changes have happened over the past two decades with the advent of electronic markets.
As Yieldbroker approaches its 20-year anniversary of operations this year, we take a look back at the evolution of the markets in that time, reviewing the most interesting milestones that have made the markets what they are today.
The financial markets, 20 years ago
Thinking back to the trading floor 20 years ago, you would see dealers with one or more phones pressed to their ears, shouting across the room and wildly gesticulating while closing a deal. This was closely followed by a hand-written buy or sell ticket for processing.
The trading process was very manual and prone to error – both in Australia and across the world. Tools of the trade were paper and pen, corded analogue phones, snail mail, fax or telex. Everything from tickets, deal confirmations and trading positions were on paper one minute, only to get lost the next. It was not unheard of for traders to be chased down to the pub for their paperwork from the day’s trading, as transactions could sometimes be forgotten or slip down the cracks of a busy day.
Administrative errors and operational risk aside, market information simply was not available or accessible. Pricing was more opaque, with dealers dependent on telephone conversations and personal relationships to source information on pricing and market turnover.
The impact of electronic trading
Today’s electronic markets have evolved by design to cater to efficiency, accuracy and due diligence. It is about having the right information to be able to come up with the right strategy as quickly as possible. So how did the Australian market respond to such vast change?
‘Australia was lucky,’ says John Kimpton (Head of Business Development), when thinking back to when Yieldbroker’s electronic trading platform was first founded by leading debt market participants in 1999. ‘Four of Australia’s largest debt market banks were aware that overseas markets were beginning to move to electronic trading and, rather than resist change, they saw that our markets would benefit from a solution tailored to local requirements. This bespoke approach really facilitated change in user behaviour, because the platform was designed to meet the needs of local market participants’ he states. 'This created the right environment for dealers to transition to online trading, delivering improved transparency, accessibility and liquidity to markets while reducing transaction and operational cost.’
The evolution of the bond market
Electronic trading enabled ease of access to pricing information, allowed traders to get a birds’ eye view of how the whole market was trading, and even enabled trading mobility. Before, traders needed to make a call to get a price on a particular bond. Now they are instantly connected to everything they need, from pre-trade information to post-trade execution capabilities.
Meanwhile, advances in technology continued to increase the overall efficiency of the marketplace, allowing for greater liquidity, lower commissions and fees, and tightening bid/ask spreads. This, of course, drove better performance through more informed decision-making.
Optimising electronic trade performance of today
As Yieldbroker’s Connectivity expert, Hayden Herbert-Jones stated, ‘Increasing connectivity technology has made trading more efficient than ever; it used to take minutes to agree and execute a trade, but now it occurs in seconds.’ The increasing competition driving greater efficiency in electronic price discovery, order-placing and executing, has spurred innovation in e-trading to deliver straight-through processing (STP) solutions.
As proven by MiFID II, Australia’s and the world’s financial markets will only continue to be further digitised as algorithm use in financial trading increases. And to enable smarter, simpler, more liquid and transparent markets, we need continuous technical innovation that’ll improve efficiency and accuracy in execution while also reducing costs.
Now, the availability of post-trade data – such as total cost analysis – further optimises trading performance. Such transparency of information, when used strategically and over time by diligent traders, creates a real competitive edge.
Shaping tomorrow’s digital markets
Of course, it isn’t technology alone that has shaped the global financial market. It is the human need for access to data and enhanced processes that has driven progress. All participants – institutions, brokers and investors now benefit from the human-driven technological advancement that will continue to shape the financial markets.
As the future of the financial markets continues to take shape, it can be argued that behind every automated system is a human whose job it is to continually improve the trading experience and outcome.
With technology being such a key factor in the future of how institutions, brokers and investors work together, it is crucial for all market participants to have access to the right solutions. Trading technology doesn’t just need to be bespoke to the market, it needs to help its users and investors be more informed and in control of their decisions.
The last 20 years in Australia’s electronic markets have led up to the digitisation it has always sought to achieve.
While the markets continue to evolve and thrive even further in the next two decades, Yieldbroker will continue to help our customers keep pace with change.
With over two decades of experience building Australia’s electronic markets, we’re always happy to talk to you. Ask us about how we can help you improve your trading experience. Contact us today.