Question: Which are three major section in which you can divide fixed income market participants?
Answer: You can divide fixed income market participants in below three major groups based in functions - Issuer: Their primary role is to issuing debt for financing. And the participants are o Governments o Corporations o Banks o Municipalities - Intermediaries: The debt is underwritten, distributed, and traded in the secondary markets by intermediaries. Which includes following participants o Investment banks o Commercial banks o Interdealer brokers - Investor: who buy fixed income, which includes following participants o Governments o Mutual funds o Insurance companies o Commercial banks o Corporations o Retail investors.
Question: Why it was considered that central electronic trading is difficult for fixed income securities, like equity?
Answer: Because usually in the fixed income trade it has a number of mobile/telephone call exchanges among - Buyers - Sellers - Intermediaries such as brokers and dealers. Which can lead to inefficiencies and errors as most of the things are manual like - Pricing - Execution - Manual corrections
Question: What are the major reason which cause of electronic trading preference over traditional trading?
Answer: - Efficiencies: It is more efficient and value added. - Regulatory requirement: In fixed income market rigorous oversight have been introduced by regulators. - Pre and post trade services are efficient and reduced manual error exorbitantly.
Question: What do you mean by Straight Through Processing in fixed income trading?
Answer: When you do any fixed income trade it requires pre and post processing of it and that is part of entire trade lifecycle. And this is automated since last many decades by the advent of Information technology. Which is known as Straight Through Processing (STP). Trade goes through various phases like clearance and settlement. This all phase requires almost same or enriched data. And that can be done using the automated process, without involving manual entry. That is all part of the STP. Following are the few examples which are being done as part of STP process in fixed income trade. - Delivery of confirms trade. - Account allocations to portfolio management systems - Delivery of trade execution messages to back office - Clearing for post-trade processing. - Capture and documentation of regulatory and compliance requirements - Risk management and monitoring. When we compare with the legacy manual process, it gives various benefits like - Increase volume processing - No human data entry error - More efficient processing