“When a trader wants to buy a bond after its issuance, they typically have to go out and find it,” Rucker-Wilson said. “Stocks typically trade on ‘lit’ exchanges where bid/ask prices and volumes are publicly posted. Bond trades differ in that they are traditionally negotiated through over-the-counter, or OTC, transactions between investors and bond dealers.”
Electronic trading offers some undeniable advantages over that process, including greater liquidity—which essentially means you can more easily buy or sell a security without affecting its price—along with greater speed and price transparency.
At Vanguard, the majority of derivatives trades are executed on an electronic platform. The pandemic further accelerated electronification with the use of rules-based automated execution for low-risk orders. This change “helped us manage our trading volumes, given that more of our team and the brokers with whom we trade were working outside of the traditional office in new remote work environments,” Rucker-Wilson said.
“Electronic trading of derivatives allows us to manage orders of nearly any size,” she said. “We can effectively trade potentially market-disruptive orders by trading them over longer periods or slicing them into smaller sizes to execute at the best price. It also gives us access to a wider pool of counterparties, which translates into better pricing and lower transaction costs.”