In the fixed-income markets, banks face an existential challenge. Dominic Holland, the head of credit e-trading at Deutsche Bank, believes that the smart application of IT offers a solution. The Basel Ⅲ capital adequacy rules make it more expensive for banks to hold bonds, undermining their role of market maker in the fixed-income business. Previously, they would have been able to hold bonds in their inventory over a period of time, buying and selling as clients needed. The corporate bond market is naturally illiquid, a consequence of the number of instruments, of different tenors, that each issuer has on the market, and so a reduction in sell-side liquidity provision creates a real strain on the service that dealers can provide to their buy-side clients.
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