Fixed-Income Trading: And then there were 77

But when the crash came, the e-bond platforms began to wither away, declining to 79 by late 2001, according to a Bond Market Association survey.

The BMA's most recent survey, in November, turned up 77 bond-trading systems serving the U.S. and Europe. The net loss of just two systems in two years indicates that the e-trading community is stabilizing.

The consolidation, however, is far from over, asserts Robert Hegarty, head of securities and investments at Needham, Massachusetts­based research firm TowerGroup. He believes that the market can support at most ten to 20 electronic venues. "It may take three to five years for the consolidation, but it will definitely come around," insists Hegarty.

Indeed, the BMA catalogue is replete with proprietary bank services and niche offerings -- among them, Deutsche Bank's Autobahn, syndicated loan network LoanX and Grant Street Group's MuniAuction site. Out of that crowd, "we are seeing a core group of systems come to the forefront," says Michael Decker, the BMA's head of research and policy analysis.

A few privately held institutional platforms have proved their ability to attract liquidity, generate revenues and reinvest in technology. These include EuroMTS, which focuses on European government securities; MarketAxess, which handles corporate bonds; and TradeWeb in Treasuries and a growing array of other asset classes. Having vanquished the likes of BondBook, LimiTrader and Visible Markets, these survivors are now mixing it up with bigger, well-heeled rivals like Bloomberg, Cantor Fitzgerald's ESpeed spin-off, Icap and SunGard Data Systems.

TowerGroup's Hegarty anticipates a round of acquisitions. Reuters Group, sources say, is eyeing TradeWeb, a Jersey City, New Jersey­based joint venture of eight top investment banks. But except for a few modest deals -- such as Market-Axess' 2001 purchase of Trading Edge -- organic growth has been more typical. ESpeed, for example, has diversified out of the interdealer Treasuries market into products like foreign exchange, mortgage-backed securities and even equities.

The combatants are yielding no ground.

"We've been battle-tested in a crowded, competitive space for three and a half years," notes Richard McVey, CEO of New York's MarketAxess, which now has 18 participating dealers, up from three -- Bear, Stearns & Co.; Deutsche Bank; and J.P. Morgan Chase & Co. -- when it opened in 2000.

MarketAxess handled $58 billion in trades in the third quarter of 2003, a 388 percent year-over-year increase. But James Toffey, CEO of TradeWeb, points out that with about $1 billion in daily volume, MarketAxess is but a niche player next to TradeWeb, which does $80 billion. McVey retorts, "Credit markets are different, and solutions have to be very specifically tailored."

In the numbers game, ESpeed outdoes both. It reported $9.6 trillion of electronic volume in the third quarter, compared with TradeWeb's $5.2 trillion. ESpeed CEO Howard Lutnick expects to prevail by layering new products on ESpeed's infrastructure. "We're global, our primary focus is on high-volume markets, and we have a built-and-paid-for electronic trading system already installed at banks," he says.

At the moment, ESpeed has its hands full: London-based Icap bought ESpeed arch-rival BrokerTec in May and BankOxygen, a network for U.S. interbank federal funds trading, in October. Icap's intention to add commercial paper, certificates of deposit and other money market instruments to the BankOxygen menu typifies how the technology providers are broadening their product lines.

In October, SunGard Transaction Network rolled two specialized platforms it acquired in 2002 -- CPmarket.com and MoneyFundTrader.com -- into a single short-term money markets system for 400 institutional clients. "It replaces a lot of phone calls and having to look at different screens," explains Laurent Paulhac, president of STN Money Markets.

The fewer screens, the better. And that will lead to fewer players in the end.