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Overbond Introduces AI-Driven Smart Order Routing System for Credit Trading

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Following the recent introduction of its bid-ask liquidity scoring model, Overbond, the API-based fixed income trading automation and execution service, has launched a Smart Order Router (SOR) for credit trading.

Credit traders on both the buy-side and sell-side often grapple with assessing a bond’s liquidity before executing a trade, information that is vital for determining which trades are suitable for auto-execution. Buy-side traders also face the challenge of deciding the optimal conditions—where, how, and when—to execute a trade. For large trades, this may involve splitting the trade into smaller portions to achieve optimal execution.

“Unlike other markets, the credit market lacks an executable bid-ask spread with significant size,” Vuk Magdelinic, CEO of Overbond, tells TradingTech Insight. “So the challenge arises when executing a large buy-side trade: how do you effectively sequence and divide it? Overbond’s new SOR represents the first systematic approach to address this particular issue in the credit market. If the goal is to automate the trading process electronically, we must strategically sequence and divide the trade into smaller chunks. This requires a nuanced approach that takes into account factors like price sensitivity and the desire to avoid influencing the market unduly.”

As a first step, Overbond developed AI-powered liquidity and price confidence analytics that automatically adapt to trade size and direction. These analytics enable traders to view implied liquidity and confidence scores across a wide range of fixed income securities. The scores are calculated based on volatility and bid-ask spread components and are categorised into tiers relative to the liquidity and pricing confidence of other bonds in the same currency. For instance, Tier 1 bonds are the most liquid and are considered the best candidates for auto-execution.

Overbond collaborated with partners from both the buy-side and sell-side to create the new SOR system for buy-side traders, which features AI-enhanced routing logic and allocates trades across multiple electronic trading venues and counterparties, based on price and liquidity, to achieve the best execution while minimising trading costs. The aim is to maximise the likelihood of successful execution and provide traders with full visibility into how an order will be segmented.

“The concept of Smart Order Routing is well-established in equities and foreign exchange markets, but it has been notably absent in the credit sector due to structural challenges,” says Magdelinic. “While some large banks may have developed internal solutions for this, there is currently no commercial offering like this available specifically for the credit market. This is what makes our initiative particularly exciting. Our goal is to empower clients by automating an increasingly larger portion of their workflow.”

A key element of Overbond’s SOR is its ability to work alongside existing O/EMS platforms. “We’ve developed a widget for Charles River Development (CRD) that seamlessly integrates within the CRD user interface,” says Magdelinic. “In addition to our standard direct API connections to O/EMSs, we support a range of protocols including WebSocket, FIX, REST, and streaming APIs. We’ve also pre-integrated our solution with several O/EMS platforms, meaning that a substantial community of existing users can immediately benefit from our offering.”

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