They were the “golden crumbs,” those bits of money that fall off as bonds get traded around the world.
Those crumbs were enough to make bond traders the Masters of the Universe in Tom Wolfe’s 1987 novel “The Bonfire of the Vanities.” But those days are long gone.
AllianceBernstein Holding LP has introduced a robot to execute corporate-bond trades directly with bots at dealer counterparties. The $587 billion asset manager used the system in August to complete three trades with similar digital assistants at Citigroup Inc., Morgan Stanley and Royal Bank of Canada.
“We’ve taken a traditional human-to-human interaction and augmented it to allow a machine to meet another machine,” said Maryanne Richter, global head of credit electronic trading strategy at Morgan Stanley in New York.
While computers have already transformed equities trading, the corporate bond market has been one of the last holdouts in finance’s digital revolution. Firms are slowly stepping up their use of artificial intelligence and crunching reams of data to get ahead.
Automation is making inroads on trading desks, such as at UBS Group AG and HSBC Holdings Plc, where robots are making bond sales more efficient. More than 40% of capital market participants that took part in a Greenwich Associates survey earlier this year said that their firms are using AI for trading. Another 17% said they will introduce it within the next two years.
Still, this is the first time that bots have traded with other bots in corporate bonds, according to AllianceBernstein.
The robot is an extension of the asset manager’s virtual assistant, named Abbie, which pores through data and identifies for traders the best bonds to buy or sell. AllianceBernstein gathers about 4 million data points a day to work out the best ways to trade including bid and offer prices from dealers and electronic trading venues.
Executing trades involves a number of manual steps. Currently it can take traders up to 20 minutes to negotiate the size, price and precise maturity of a trade with a counterparty on the other end of the phone or instant message. With bots that could become almost instantaneous.
“Machines are helping us to make smarter decisions and be more efficient,” said James Switzer, global head of fixed-income trading at AllianceBerstein. “I guess we could look out 5 or 10 years and start anticipating what would happen, but right now they aren’t replacing traders, they’re really just helping us trade.”