Monday, 27 October 2014
Quantitative easing and the future of corporate bond trading
A modest proposal to revolutionise corporate bond trading…
The elevator pitch is simple. As the Eurozone economies stagger towards deflation, with interest rates close to zero, the only tool left in the cupboard is quantitative easing (QE).
Since any central bank that is engaging in QE is going to be very much the biggest buyer in the market it has the power to mandate change. Essentially the ECB or another other central bank can say to the market “we’ll only buy your bonds if your head of trading turns up wearing a tutu and a one direction t-shirt” and there will be a run on large tutus and one direction t-shirts.
So why doesn’t the ECB mandate that the only way they’ll do QE is if the market will publish two way firms quotes in size to an ECB managed central limit order book using FIX. So the ECB builds out a matching engine infrastructure that is only accessible to the ECB, so no information leakage issues. The banks build technology for a single 800lb gorilla client, this happens all the time.
Why? Once they have finished QE, turn the infrastructure over to the market as a utility. I have been a fan of the trading utility model since 2007