Question-126: What is the Dealer-customer based trading platform in the Fixed Income?

Answer:  In this case dealer trade with their customers or clients. That is also known as dealer customer segment. Clients are usually asset managers, pension funds, insurance companies and corporations. Again, end user does not directly trade with another end user. Detail of the trade was only known to counterparties and dealers. Because everything was happening over the phone. And it was never disseminated to wider public investor. 

Because of market segmentation, quotes and trade prices for the same bond at the same time could vary greatly across dealers.

SDP:  Stands for Single Dealer Platform

MDP: Stand for Multi-Dealer platform.

Question-127: What do you mean by Oder-Driven market in the Fixed Income?

Answer: Fixed income markets had a major shift with electronic communication networks (ECNs) started to gain traction in inter-dealer markets. An ECN is a system which electronically matches buy and sell orders for securities. ECNs operate as virtually centralized marketplaces, aggregating offers to trade and matching them against incoming trade requests. In contrast to the dealer-client markets, which were quote-driven, these platforms were generally order-driven. An order-driven market is a market in which executable prices are offered in advance of any requests to trade.

Question-128: What do you mean by Central Limit Order Book (CLOB)?

Answer: In some cases, ECNs uses the trading protocol of the central limit order book (CLOB). This is a trading protocol in which any outstanding bids and offers by market participants are stored in a queue and must be executed in a priority (usually time based, first come first serve) sequence. In the inter-dealer market, CLOBs are transparent to participants, in the sense that any ECN member may view the set of bids and offers at which one can sell or buy. Transaction prices and volumes were often disclosed post-trade.

Question-129: Can you describe SDP and MDP platform for Fixed Income market?

Answer: SDPs are proprietary trading systems offered by a single dealer to its clients. MDPs reduced search costs by allowing end investors to request quotes to trade from a number of dealers simultaneously. MDPs also has additional features such as automated record-keeping, making it easier to audit.

Question-130: Can you describe RFQ (Request for Quote) in fixed income market?

Answer:  In the request for quote (RFQ) trading protocol, participants can query platform market-makers and request prices on an order of a particular size. RFQ systems can vary based on

• Whether quote requester or quote receiver reveals its identity
• Sign of the order (buy or sell) is revealed
• How many and what kind of participants may receive RFQs
• Whether the quotes are executable or indicative.
• In many fixed income RFQ systems, participants query only dealers and only in limited numbers.