UBS Testing Machine Learning on Bond Trading

UBS is joining the 21st century. Yes Sir/Maam, no sneaking up on the UBS crew. UBS is going into the electronic trading world and is testing a program using machine learning to price smaller trades in the U.S. corporate-debt sector. This is a $8 trillion market that still basically relies on phone or messaging services between buyer and seller for pricing and trading. Who knew? It seems the fixed income trading sector has lagged the technological advances that have been adapted by stocks. UBS has realized that using machine learning to price some corporate debt is much more efficient than the old human way. Oh, and here is a great spin, those human traders? In the words of UBS, “this will free up traders on the desks to have bigger picture, thematic conversations”. Like, now that we’re out of a job where should we have lunch today. Welcome to the 21st century.
(Bill Taylor/Managing Editor)

“UBS Group AG is ready to jump on the electronic-trading bandwagon to help boost its U.S. corporate-debt trading business.

The Swiss bank is testing a computer program that will price and trade some inquiries received by its bond desk — which are typically for smaller, so-called odd lots for high-grade bonds. The bank recently hired Gokul Chebiyam, who previously helped found a machine-learning corporate bond startup, to its investment-grade credit trading team.

UBS is the latest bank to embrace efforts to modernize the more-than $8 trillion market for corporate debt, where most deals are still carried out over the phone or via messaging services. Last week, Morgan Stanley President Colm Kelleher told a conference in London he can’t wait for fixed-income trading to go electronic. The market has lagged stocks where the adoption of electronic trading has been near universal.

“There is significant room for expanding the electronic-trading effort when it comes to credit across the sell side,” Gary Rapp, head of investment-grade trading at UBS, said in an interview. “We can now teach a computer to process thousands of data points, which at times can make its pricing even sharper than a human. This frees up traders on the desk to have bigger picture, thematic conversations…”