Mifid II encouraging AI boom in fixed income

Author: Olly Jackson | Published: 7 Sep 2018

Mifid II could encourage the growth of artificial intelligence (AI) in financial services, but regulators need to be wary that any rules need to be incentive-based to avoid deterring investment in innovation.

One specific segment of financial services which could benefit most from AI is the fixed income space, which has historically been considered too complex for automated technology. Around 60% of European government bonds and 50% of US treasuries are traded electronically, and new regulation could push this further.  

Mifid II requires firms to report prices and volumes of completed bond transactions, a highly resource-intensive process unless some kind of automation is implemented. The best execution requirements for fixed income also encourages algorithmic trading to provide an audit trial.

"The fixed income asset class is seeing significant efforts to automate the execution process with some dealers fully automating the execution of odd lots," said Munder Shuhumi, managing director of...