The Structure of Trading in Bond Markets
Despite the fact that bonds are less risky than stocks, transaction costs can be one hundred times higher in bond markets. Innovations in technology, institutional arrangements and regulation have driven down trading costs in equity markets, but have not had a comparable impact on bond markets. The Financial Economists Roundtable believes that an order display requirement in the fixed income markets would substantially improve market quality for retail and institutional investors alike. FER urges the U.S. Securities and Exchange Commission (SEC) to improve bond market efficiency by simply requiring brokers to post their customers’ limit orders to an electronically accessible broker platform or alternative trading system, where one customer’s limit order could trade against another customer’s order without dealer intermediation.
