20 Years In, Fixed Income Relies on BrokerTec More Than Ever

At a Glance

  • The widely used fixed income trading platform helped speed up adoption of electronic trading in the early 2000s
  • At the outset, BrokerTec’s European repo platform went from around $2 billion nominal on day one, to $35 billion by day three

Around the turn of the century, financial markets began to move in earnest toward electronic trading.  Market participants of all types had to that point relied mainly on phone calls to brokers to place trades. It was no different in the fixed income market, but the banking community was looking for something new.

In 1999, 14 banks collectively invested in a new electronic trading platform focused on the fixed income market. They sought to stimulate more competition into developing the execution side of the market, speed up the adoption of electronic trading and a move away from voice brokering. The name of the game was greater efficiency.

The result was CME Group’s BrokerTec platform, today the leading electronic trading platform for fixed income,  which recently marked the 20th anniversary of its first trading session.

BrokerTec was created in 1999 to deliver greater efficiencies through electronic trading and more automation post-trade for the U.S. and European government bond, fixed income and repo markets.

After several months of technical development, both in terms of the matching engine and a trading GUI or front-end application, BrokerTec went live in June 2000.

Process Benefits

The key to the platform’s success was the banks’ commitment to invest in linking their end-to-end systems to BrokerTec. This ensured that the benefits of an electronic platform were obvious to the middle and back offices as well as to the front-office traders.

“A lot of people talk about electronic platforms purely in terms of the ability to execute,” notes BrokerTec’s managing director John Edwards, who joined the firm prior to launch.  “But platforms only really succeed when they have straight-through-processing in place and when they are fully integrated into customers’ workflows.

“We were fortunate that our shareholders were prepared to support us by committing internal resources to make BrokerTec integral to their day-to-day business operations,” Edwards adds.

Repo Uplift

BrokerTec’s products at launch were U.S. Treasuries (UST) and European government bonds (EGB).  The platform added U.S. and European repo markets later that year.  BrokerTec saw solid and steady growth in the UST and EGB markets almost instantly, but the repo products proved to be an immediate success.

BrokerTec’s repo launch in Europe came shortly after a central counterparty clearing solution had been launched for repo in Sterling and Euro. The combination of electronic execution with clearing proved irresistible to the repo community. The European repo platform went from around $2 billion nominal on day one, to $8 billion on day two and then $35 billion by day three. Twenty years later, repo remains a core part of the BrokerTec offering.

Changing Hands

The rapid adoption of BrokerTec by the fixed-income markets drew many suitors to the platform and in mid-2003, the original consortium sold the business to ICAP Plc, part of which later became NEX Group.

NEX Group was acquired by CME Group in 2018, and, 20 years after their original launch, BrokerTec products are being migrated to CME’s Globex trading platform, where they will sit alongside CME’s other fixed-income products, including Eurodollar and Fed Funds futures. This will complete the platform’s journey, offering significant synergies and strategic opportunities by combining both outright cash bonds and repo alongside listed rates.

Back to The Future

The economic environment into which Broker Tec launched is very similar to today. In late June 2000, the global economy was struggling to emerge from a recession, while a period of zero interest rates was forcing financial institutions to innovate in order to reduce trading costs.

Both then and now, increased trading and operational efficiencies matter to market participants that are dealing with a challenging trading environment.

In response, BrokerTec continues to innovate in order to drive down the cost of trading. In early 2020, the platform rolled out a new dealer-to-client request for quote (RFQ) trading solution, known as BrokerTec Quote, which provides a more intuitive and efficient means of trading, stepping into the Dealer-to-Client space.

The integration of the its platform with CME Globex will mark another new chapter for BrokerTec. The platform has seen a lot of change in 20 years as electronic trading has matured.  Fixed income trading will continue to evolve as market needs change, and BrokerTec looks primed to evolve with it.

 

BrokerTec Americas LLC is a registered broker-dealer with the U.S. Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (www.FINRA.org), and is a member of the Securities Investor Protection Corporation (www.SIPC.org).

In the UK, BrokerTec Europe Limited is authorised and regulated by the Financial Conduct Authority. CME Amsterdam B.V. is regulated in the Netherlands by the Dutch Authority for the Financial Markets (AFM) (www.AFM.nl).

 

is Global Head of Research at CME Group. He is based in London.

Additional Recent Articles in Global Finance