Operators who are independent claim an advantage.

Regulators have proposed conflict of interest rules governing SEFs, SDRs and CCPs that will require independent governance.

This puts MarektAxess on a favorable footing vis-à-vis its competition.

“Clients like fact that we’re independent, that we are a public company that can act objectively with respect to the best interests of both dealers and investors,” said Richard McVey, CEO of MarketAxess. “Regulators like independence too. We went public in 2004, we have a fully independent board, and our financials are public. Today, some of our competitors are not independent, and that will be a differentiating factor in the trading space going forward.”

The fixed income market today continues to be segmented by client segment: interdealer brokers such as BGC, ICAP and GFI operate trading venues within the dealer-to-dealer (D2D) segment, while other entities cater primarily to the retail trading community.

MarketAxess is firmly planted in the institutional customer-to-multidealer (C2D) segment.

The majority of its revenues are derived from commissions for trades executed on its platform that are billed to its broker-dealer clients on a monthly basis.

“The core of our business is electronic execution,” said McVey. “Most trading we do is RFQ or auction-based, where clients initiate electronic orders and send them to dealers of their choice, who then compete for those orders.”

It’s a system that’s tailored for less-liquid fixed income markets. Unlike exchange-traded products, most corporate bonds only trade a few times a day. “Whereas it’s impossible for dealers to make live markets on hundreds of thousands of securities that trade infrequently, we provide liquidity on demand with our auction-based system,” McVey said.