December 20, 2021

Predictions 2022: APIs are key to the evolution of fixed income trading

TransFICC share their thoughts on how the Fixed Income market will evolve in 2022…Fragmentation in Fixed Income and Derivatives. The electronification of fixed income and derivatives markets…

TransFICC share their thoughts on how the Fixed Income market will evolve in 2022.


Fragmentation in Fixed Income and Derivatives

The electronification of fixed income and derivatives markets continues apace. Electronic trading satisfies the requirement to capture accurate data and report it to regulators and compliance departments, combined with the need for liquidity, and the incessant demand for increased efficiency in the middle- and back-office.

There are now more than 150 e-trading venues in the Fixed Income market, and fragmentation is increasing as more new venues launch.


API Connectivity to Manage Fragmented Markets

Many venues have multiple APIs supporting different workflows, or different APIs for each asset, for data and for post-trade. This means that there are approximately 300 different API specs for the Fixed Income and Derivatives market.

Connecting to any one of these APIs typically takes three to six months and venues periodically upgrade APIs to add functionality or new fields. It takes time and resources to code and test before updated systems can be released into production. Onboarding to new APIs is a major challenge for all trading firms and inhibits the adoption of new venues.

The scale of the problem becomes apparent when you multiply the workload required to connect to a venue by the number of APIs which you want to connect to. In some instances, the larger firms are asking us to connect with, and manage connectivity with, 70 APIs.


2022 – Focus on APIs, the Cloud and a Consolidated Tape

Fragmentation in Fixed Income markets is here to stay. As well as compliance and efficiency, cost is a major factor driving the adoption of electronic trading – banks are spending vast amounts on infrastructure, and some of those costs inevitably get passed onto clients.

APIs are complex, and need to be updated as venues add functionality, or expand the fields available, or if processes are added for regulatory reasons. Although some banks have the resources and expertise to manage API connectivity in-house, budget is not always available for testing and maintenance.

The Cloud is also key to the continued market evolution. In the past two years there has been more acceptance that the Cloud offers the benefits of scalability and reduced costs, and that it can be used for asset classes that are less sensitive to latency.

TransFICC uses both the Cloud and co-located technology at data centers, supporting different workflows and asset classes. Trading requires a flexible approach, where one size does NOT fit all.


Customisation is Key

In Q4 2021 TransFICC developed a custom API Bridge for liquidity providers to connect to BrokerTec Stream, saving them many months of coding and testing time. This partnership enables liquidity providers to connect to the Brokertec Stream API without needing to code.

With efficiency the key requirement, customised solutions such as this, built in the cloud for maximum scalabilty to meet evolving functionality will be essential to the evolution of the Fixed Income market.


Looking forward to a new Consolidated Tape

In 2022 there will be a lot of discussion about a Consolidated Tape in Europe. Legislation is still required, and requirements are not yet agreed but policy makers are clear that they want a tape.

Venues, clients and FinTechs need to think about the technology challenges and opportunities that a Consolidated Tape will provide.TransFICC share their thoughts on how the Fixed Income market will evolve in 2022.

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