Toronto-Dominion Bank is winning more Wall Street business trading bonds, and doing it with fewer people.
The Canadian bank has built up a computer-driven trading team over the past few years that has helped it gain in the U.S. league tables in investment grade corporate bond transactions on the biggest venue for electronic bond trading, MarketAxess Holdings.
The bank rose from 20th in 2021, to ninth last year and sixth so far this year — leapfrogging bigger banks like JPMorganChase and Citigroup in total number of trades — and it is now at the top of the tables for municipal bond trading. To do this, it has doubled its automation team in the last four years and poached automation experts from rivals like JPMorgan.
But the algorithmic trading has allowed it to shed even more employees from the ranks of old-school voice traders who used to dominate the fixed income world from their phones, according to the co-heads of TD Securities Automated Trading, Marty Mannion and Matt Schrager.
"Technology and automation will promote leaner, more efficient teams over time," Schrager told Bloomberg in an interview last month.
The changes at TD offer a window into the automation that is sweeping the fixed income industry more broadly and making jobs redundant across Wall Street. Last year, 48% of U.S. investment-grade bonds traded electronically, up from 34% in 2021, according to Crisil Coalition Greenwich.
Schrager and Mannion declined to offer a specific number of jobs that have been reduced and said humans remain a necessary part of their operation, in part to oversee the computers and in part to handle trades that are large or require the discretion that a phone conversation can offer. But they estimate that more than 90% of transactions will eventually be automated.
TD's efforts to take advantage of this are a central part of the bank's ambitions to join the big leagues on Wall Street. The push is particularly important for TD because it is trying to recover from one of the worst money-laundering scandals in U.S. banking history, which led to a $3.1 billion fine and a cap on the size of its U.S. retail banking business.
The capital markets operations — referred to by the company as wholesale banking — are still only about 13% of TD's total revenues, but they are not subject to the asset cap and have been one of the few sources of growth within the company in recent years, accounting for $7.3 billion in revenue in 2024, up from $4.8 billion two years earlier. Meanwhile, headcount in the division shrank 5% last year.
The changes at TD have been led, in part, by the acquisition of companies with expertise in U.S. markets. In 2023, it purchased the New York-based investment bank Cowen for $1.3 billion. That came two years after TD bought Headlands Tech Global Markets, a Chicago-based company that specialized in automated bond trading.
Headlands was started by top executives from the electronic trading behemoth Citadel Securities. Schrager and Mannion, who were a part of Headlands, said they took TD's offer in part because the bank had little expertise with automation, which gave the newcomers more leverage to push for change.
"TD had no problem plugging us in and saying, 'We don't know how to do this. We want to empower you. Have at it,'" Schrager said.
Schrager and Mannion saw parallels between Headlands and Cowen. Both were smaller, more nimble firms with hard-driving cultures and technological expertise. In contrast, TD was "a little bit conservative", and integrating both acquisitions required openness to change and realism about its own capabilities, they said.
Headlands initially focused on municipal bonds, a business that had been viewed as nearly impossible to automate because the market is so fragmented and illiquid. When TD made the acquisition, it was handling almost all muni trades by phone. The Headlands team, which was renamed TD Securities Automated Trading, slowly took over this business and now does almost all of it in computer-driven transactions.
The team is now applying the same tools to the corporate bond markets. The company says that algorithmic credit trading business tripled between the first quarters of last year and this year.
The success of TDSAT comes with risks. It is slashing the revenue per trade, so that everyone has to do more with less. Meanwhile, automation is allowing some investors to skip market makers like TD and match up with each other directly. This so-called all-to-all trading accounted for 11% of market volume in April, up from 6% in April 2023, according to Crisil Coalition Greenwich.
But TD has made a number of moves to cement the place of automated trading at the center of its fixed income desks. Last year, it put all of corporate bond trading under TDSAT, and did the same with its muni bond desk in April. The company has listed e-trading as a key priority in its most recent annual report.
"More and more will become electronic over time, and I think there will be more efficiency on the voice desk over time, which leads to more revenue per headcount," Schrager said.
