All-to-all:

Buy-side to buy-side: One of the main problems of B2B trading network is determining the price for a bilateral exchange between two buy-side participants in the absence of a multilateral market price which could be considered ‘fair’ to both sides and agreed as fair by the regulator. In the equity world, this problem is solved by the use of the mid between the best bid and offer (BBO) across all the marketplaces in which that equity trades – the European Best Bid and Offer (EBBO). But this is not available for bonds. Blackrock, which launched a B2B platform in 2012, announced a year after that it was discontinuing its attempt to offer such a service.

Liquidity aggregator: Neptune

Call Market: this is also the way in which most European stock markets including the LSE set opening and closing prices. It simply consists of a “periodic market auction”. Periodic auctions, rather than continuous auctions, aggregate the buy-side’s demand for liquidity over a period of time into a short trading session. In this model, it is thus much more likely that a match can be found for bonds which trade relatively infrequently. In addition, often if there is no match, the provider of the ‘sessions’ platform, may be willing to commit capital and take the other side.

Hybrid system: these are system that use both electronic trading and voice assistance. It operates in a similar way to a limit order book in many regards. It requires two parties to agree a price at which they will trade, but GFI then advertises the trade to the market for a brief period. More often than not, other participants join in and the trade goes through in larger size than the amount agreed between the two original parties. This system brings in people who are neither traditional takers or makers but a third group which is opportunistic: people who want to see a trade happening first and will then go along. Order book trading can also be supplemented by periodic auctions when there is insufficient liquidity in the continuous trading order book.

We are probably at a stage in the electronic market development where new trading platforms will continue to be launched at regular intervals. But we will also see a Darwinian process whereby many of them will fail to gather sufficient business and will disappear.

For liquid bonds, exchange type trading may become more common. Where that liquidity is not there, a continuos market with pre-trade transparency will not work and perhaps even periodioc auctions may not solve the problem. Thus brokers/dealers capital facilitation might be needed at an higher cost. Institutional LIS crossing network will succeed and buy-side will probably shift toward a more active role in price making rather than just participating as a price taker.