This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Bond Trading Sees Rise of the Machines

NEW YORK ( TheStreet) --Bonds are the new stocks, at least where Wall Street spending is concerned.

A few years ago, being a fixed income trader was a reliable path to riches on Wall Street. That has changed, even as financial institutions are upping their spending on fixed income trading technology.

A report released Tuesday by consulting firm Greenwich Consultants provides the latest evidence of the latter trend. In a survey of buy-side institutions, Greenwich found that fixed income desks are the most likely to increase spending on technology.

"Several factors are driving the desire to evaluate current systems for potential change, including the need to keep pace with new regulations that are changing the market structure in derivatives and imposing taxing new compliance demands across asset classes. With the fixed-income market arguably undergoing the most change at this point in time, it comes as little surprise that buy-side investors in this asset class are both more likely to be looking into ways to improve systems and to be spending more on technology," the report states.

Must Read: Satya Nadella Needs to Pull a 365 at Microsoft

What's interesting about this technology spending increase is it comes just as pay for fixed income traders is down. Compensation for fixed income traders likely fell between 0-15%, the worst performing of 13 categories in a November report from compensation consultant Johnson Associates 

Fixed income markets have long offered less transparency than equities markets, but new regulations are changing that dynamic. Fixed income securities such as swaps must increasingly be routed through central clearing facilities. While part of the spending increase is merely to connect institutions to those new facilities, firms wouldn't make those expenditures if they didn't continue to see potential profits in fixed income.

But where the profits come from is likely changing in the face of greater oversight. When prices of fixed income securities were difficult to determine, it was easier for big institutions like Goldman Sachs (GS - Get Report) and JPMorgan Chase (JPM), as well as their buy side counterparts like Pimco and Blackrock (BLK), to gain an advantage. If anyone knew the price, they did, and that knowledge often translated directly to trading profits. But as prices become easier to see, as is the case in equities markets, being able to trade faster is the only way to get an edge. And to trade faster, you need faster technology.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
GS $188.49 0.39%
MS $34.44 1.10%
AAPL $112.76 -0.47%
FB $89.43 -1.74%
GOOG $618.25 -1.92%

Markets

Chart of I:DJI
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASDAQ 4,776.5080 -51.8170 -1.07%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs