Electronic bond trading is the use of online marketplaces on which banks, funds and insurers trade bonds and interest-rate swaps with each other, on a screen instead of by phone. A bond is a loan that investors make to a company or a government, which repays it with interest over a fixed period. An interest-rate swap is a contract in which two parties agree to exchange interest payments. For example, one side pays a fixed rate and the other pays a rate that changes over time.
Bonds trade differently from shares. A large company has one kind of share, which is traded thousands of times a day. But a single government or company may have issued dozens of different bonds, and many of them are traded only a few times a month. So most bonds do not have a busy order book like a matching engine keeps for shares. The most common method is a request for quote (RFQ). The buyer asks several dealers for a price at the same time, and picks the best reply.
Consider a pension fund that wants to buy ₹50 crore of a large company's 10-year bond. Its order starts in the fund's investment management system. The trader sends an RFQ to five dealer banks on the platform. Within 30 seconds, five prices come back. The trader picks the best one with one click. The platform records the trade, with its time and price, and sends it for clearing and settlement. By phone, the same work used to take several calls, and the record had to be typed in by hand afterwards.
The platform also helps the trader judge prices. It shows recent trades and dealer prices, alongside the data on a financial data terminal. Regulators can check later that the fund paid a fair price.
In India, banks trade government bonds on NDS-OM, an electronic order-matching platform owned by the RBI, and many corporate bonds are traded on the exchanges' RFQ platforms. Interest-rate swaps are usually guaranteed by a clearing house, as many derivatives are. Ordinary savers buy bonds in a different way, on a fixed deposit and bond platform.