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Credit trading better with people

Electronic systems not keeping up

– Machines that are replacing humans in much of the fixed-income market are proving less successful in one corner of Wall Street: credit trading.

A shift in corporate-bond transactions to electronic systems is failing to keep up with total volume, accounting for 19 percent of investment-grade trades worldwide last year after reaching 20 percent in 2012, according to a Greenwich Associates survey of institutional money managers. That contrasts with government-debt markets, where 49 percent of U.S. trades were done electronically last year after 31 percent in 2012.

The slowdown in electronic exchanges of company debt is helping to ratify efforts by dealers from Royal Bank of Canada to Royal Bank of Scotland to hire more traders that profit from matching buyers and sellers over the telephone.

While the world’s biggest banks have been shrinking teams of government-debt and currencies traders as more of those transactions go electronic, they’re finding that the thousands of debentures governing corporate securities aren’t as easily commoditized.

“The prevailing view is that there is a huge growth opportunity in corporate-bond electronic trading, but that doesn’t seem to be the case,” said Kevin McPartland, head of market-structure research at Greenwich Associates, a financial research firm in Stamford, Conn. “The current market structure is not particularly suited to levels of electronic trading seen in other markets.”

While total electronic investment-grade bond transactions increased, they lagged behind growth in all trades, according to the firm’s survey of investors who generally trade in chunks of $250,000 or more. The data don’t include individual buyers, who typically trade in smaller sizes that are more conducive to automation.

The proportion of investment-grade bonds that traded electronically in the U.S. fell to 8 percent last year from 14 percent in 2012, Greenwich Associates data show. In Europe, buyers boosted electronic trades to 31 percent of all investment-grade activity in the region, from 29 percent the prior year.