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AI Rising In Fixed Income

Terry Flanagan

It was once about nudging traders to the mouse; now it’s moving them away from it.

Tradeweb has spent the last couple decades nudging fixed income traders towards their mouses to buy and sell. Now part of its plan is to entice market participants to step away from the desktop devices.  

No, the trading-platform operator isn’t seeking to ‘de-electronify’ the market and go back to the telephone. Rather, Tradeweb is deploying artificial intelligence to automate trades, obviating the need for an individual to point-and-click for many run-of-the-mill transactions. 

Lee Olesky, Tradeweb

Buy- and sell-side trading desks can deploy algorithms to program their process, and they get liquidity aggregation and trade execution “without a click,” said Tradeweb Co-Founder and CEO Lee Olesky. “Things go through with all the data and factors that go into the decision tree.”

Still just a curiosity less than a decade ago, AI is growing rapidly as a trading technology. In the first half of 2019, 21.6% of activity on Tradeweb happened via automated tools, up from 13.6% last year, 2.7% in 2014 and less than 1% in 2013, according to company data.  

Olesky spoke on the “Behind the Market Structure” webinar hosted by Greenwich Associates. 

Kevin McPartland, Managing Director at Greenwich Associates, noted that pressure on investment-management fees is a high-level catalyst for AI-enabled processes, as firms look to cut costs and gain efficiencies across the board. 

In addition to giving traders more time to focus on more challenging, higher-value trades, Olesky said AI is also a risk-management tool, in that all the ground is covered. Pre-AI, “you never really knew, from a data standpoint, all that was happening,” Olesky said. “Now everything is captured, and in a more streamlined way.”  

To be sure, there are still skeptics regarding AI’s ultimate utility in financial services, and large buy-side institutions are generally not first movers when it comes to new technology. But AI tools such as Tradeweb’s AIEx Automated Trading have the wind at its back in terms of an open-mindedness to technology that wasn’t there when the firm first came onto the scene in the late 1990s and made the bold decision to use the internet as its backbone. 

“Over the last 10 years, the application of technology to make business more efficient has been a focus,” Olesky said. “People are looking to use software and technology to streamline a process. I don’t think there’s resistance anymore to electronic trading.”


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