Retail Bond Trading Growth
Retail investors have historically focused on equities, but low interest rates, ETF proliferation, and digital platforms have increased retail participation in bond markets. Individual corporate bonds, Treasury securities, and municipal bonds are now accessible to retail investors through online platforms, creating new market structure considerations.
Spread Economics in Bond Markets
Bond market-making is spread-based, as in equities. Market makers buy bonds at the bid price and sell at the ask price, capturing the spread. In bond markets — which are less liquid than major equity markets — spreads can be significantly wider, making the execution quality question for retail bond investors more significant than in equities.
Transparency Differences
Bond markets have historically been less transparent than equity markets. TRACE reporting has improved post-trade transparency in corporate and Treasury bonds, but pre-trade transparency (visible quotes) is limited. This opacity can disadvantage retail bond investors who lack the information to determine whether they are receiving competitive execution.
Regulatory Responses
FINRA and the SEC have worked to improve bond market transparency and investor protections. The SEC's proposed best execution rules extended to fixed income transactions. FINRA's TRACE system has expanded coverage. Whether these measures adequately protect retail bond investors — particularly from spread extraction by market makers — is an evolving regulatory question.