Automated Bond System Details

The Automated Bond System was used actively and monitored from 1977 to 2007 by the New York Stock Exchange. It was essentially a large inventory of bond prices accessible for investors whose intention was to buy bonds. The system also provided support, displayed and matched orders in securities in real time by price.

Companies that subscribed to the ABS were able to automatically execute orders in corporate, agency, Treasury and municipal securities, but most of the trading occurred in corporate debt (bonds). ABS allowed for the trading of over 2000 debt securities. Investors had valuable access to a database of illiquid bonds, meaning bonds with low trading volumes.

Illiquid or inactive bonds and cabinet or inactive securities are securities with meager trading volume. Before the Automated Bond System, investors had a challenging time looking for a quote for them.

Example of Automated Bond System

Suppose your company had decided to invest part of its capital in low-risk debt securities. In that case, you'd most likely choose to invest in bonds, which businesses or governments that need to raise money issue to finance operations. You may choose to buy inactive bonds precisely because of their lower price or to differentiate your portfolio (to invest in various securities to decrease the risk factor).

When using the NYSE services between 1977 and 2007, you'd have turned to its Automated Bond System to see what bonds are there for sale, their prices and yields, and what orders for them exist. Furthermore, you'd need to follow the financial environment and maybe purchase or sell more.

ABS assisted investors in their decision-making process. In 2007 ABS was replaced by NYSE Bonds, which, according to NYSE, is similarly "designed to provide investors easy access to transparent pricing and trading information in today's debt market." This time around, NYSE designed the new system to serve smaller investors and the large companies the ABS provided information for.

Significance of Automated Bond System

By 2014 the growth of automated trading neared $13 trillion. On August 23rd, 2019, Reuters issued a report on London's debt sales, which summarized the slow technology implementation and the insignificant changes over the last twenty-five years. On the contrary, equity markets had shifted to electronic systems.

In her report on Reuters' website, Virginia Furness underlined that "the resistance to the march of the machines comes down to the relationship-driven nature of bond sales. Successful pitches can hinge on person-to-person ties forged over lunches in restaurants, while bankers leave a long paper-trail of documentation on deals that can take months of back-and-forth." Around the same time, statistical data showed that global bond issuance had fallen by 4%.

In contrast, ABS served retail bond investors with distributed bond quotations and price reports in real time. Digitalization of trading has been put under the spotlight because it facilitates the transparency investors require. This explains why, along with the NYSE Bonds, many other electronic trading platforms, like Bloomberg, Electronifie, GFI Group, ITG, and KCG (to name a few) are operating.