Chapter 17

The STP Flow of Debt Instrument Trades

17.1 INTRODUCTION

Most trades in debt instruments are executed by sell-side firms as principal; there is no stock exchange involved. Instead, market makers publish bid and offer prices and compete with each other. Their bid and offer prices are published on Reuters and Bloomberg.

17.2 ORDER PLACEMENT

Orders may be placed by any of the following means:

  • By researching best bid and offer prices and telephoning a market maker direct
  • By researching best bid and offer prices and sending orders through hub and spoke services such as Omgeo Oasys or Autex
  • By using the electronic bond trading platforms provided by information vendors such as Bloomberg, Reuters and Thomson Financial
  • By using the services of a money broker. The money broker will aim to provide “best execution” subject to and taking into account the nature of the order, the prices available to the broker in the market and the nature of the market in question. The money broker will charge a fee for its services, which is usually invoiced at the end of the month in which the order was executed. Money brokers offer both telephone-based services and also electronic order entry and matching services.

17.3 ORDER EXECUTION

The sell-side firm will normally execute the trade as principal, and earn its income from the spread between the average price of its position in the securities and the price of the order. The sell-side firm may be running a short position in the security concerned. ...

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