European credit trading has historically had higher levels of electronic trading compared to the US market. However, recent analysis by Coalition Greenwich shows a rise in e-trading in US investment grade markets. Increased competition in the space has led to innovation and engagement with dealers and buy-side clients.
While European markets have been consistent in their e-trading levels, the US market has room for growth. Electronic trading approaches differ between the US and Europe, with European buy-side firms being more open to seeking prices from multiple dealers, causing challenges for market makers. In contrast, the US market tends to be more selective in trading.
European capital markets stakeholders need to focus on fostering competition to further electronification. Regulatory intervention may not be the solution, as the region has struggled to create a competitive single market under the Capital Markets Union. The complexity of regulations like MiFID II has proven to be expensive and ineffective.
Europe must look to market operators, banks, and investment firms to bridge the gap between national markets and create a unified market for bond trading. The US market has been a leader in credit trading innovation, and Europe can benefit from greater competition, more sophisticated trading approaches, and operational models to overcome fragmentation.
Ultimately, increasing electronic trading in European corporate bonds will lead to better execution and benefit issuers and investors.