AxeTrading, which provides fixed income trading technology, is aiming to expand in North America, Asia Pacific and Latin America over the next year as more buy-side firms adopt the firm’s execution management system.

The firm launched in 2009 and is focused on providing an EMS for asset managers who have been forced to become less reliant on liquidity from the sellside and are also increasingly looking to participate in an all-to-all trading model, where they have to make prices.

Mark Watters, CCO and co-founder of AxeTrading, told Markets Media: “In the next 12 months we expect to open an office in North America, continue to expand in Asia Pacific and hopefully have our first customer in Latin America. In addition, a number of buy-side firms are expected to have adopted our EMS for fixed income.”

He added that three large asset managers recently chose AxeTrading’s fixed income EMS rather than adapting their equities platform. Axe Trading has also been targeting emerging markets and fixed income firms who are likely to become more prominent as regional players.

For example, South African’s Nedbank became the first bank to transact on the country’s new ‘ETP’ government bond electronic trading platform which went live on July 18. Nedbank and several other ETP participant banks use AxeTrader, the firm’s flagship platform.

“In South Africa we pitched to five local banks who did not have their own fixed income systems and four took our solution,” added Watters.

MiFID II

In Europe MiFID II, which came into force at the start of this year, extended best execution requirements from equities into fixed income for the first time. Watters thinks the real technical response to MiFID II is only just beginning.

“For example, one of our clients has just decided to become a systematic internaliser and so needs a new technology solution,” he said.

MiFID II prohibits broker crossing networks and requires firms to set up systematic internalisers in order to commit capital. More than 100 SIs have registered in fixed income which has led to increased fragmentation and complexity as investors need to navigate more venues and trading protocols. AxeTrader provides banks, broker-dealers and buy-side firms with an aggregated view of of fixed income liquidity including axes, runs and quotes from the electronic venues, messaging platforms and voice channels used by a client.

“More MiFID II data is beginning to emerge and clients are discussing APIs, how to use data and how to integrate data into their workflow which will feed into the best execution process,” added Watters. “These conversations were not happening to such an extent even in January and February this year.”

As a result of the increased regulatory requirements under MiFID II, AxeTrading signed a technology partnership with BGC Partners in April this year for the broker to extend its use of AxeTrader across a number of its agency businesses.

The firm said in a statement at the time: “The move comes as BGC Partners extends its regulatory compliance, with immediate attention to the cross-asset best-execution requirements of its agency brokerage businesses under MiFID II, which came into effect on 3 January 2018.”

Last year AxeTrading received a strategic investment of €2m ($2.4m)  from Illuminate Financial Management, the venture capital firm which funds fintech companies in capital markets that create change through providing solutions for cost, control, capital efficiency or compliance with regulations.

Fragmentation

Consultancy Aite Group said in a report, Best Execution, Fragmentation, and Data: Fixed Income’s Cerberus, that the fragmentation of fixed income liquidity has reached an all-time high with the proliferation of electronic venues heading to nearly 150.

Audrey Blater, Ph.D., author of the report, explained in the report that Cerberus is a three-headed dog that guards the underworld to prevent the dead from leaving.

“While no such beast exists in reality, best execution, fragmentation, and data have become three pain points in today’s bond markets that prevent full transparency – the Cerberus of fixed income,” she added. “While best execution practices are required by regulators, collecting, cleaning, and aggregating supportive data can be incredibly challenging for illiquid securities.”

She cited Bill De Leon, managing director and global head of portfolio risk management at asset manager Pimco, who spoke at the Fixed Income Leaders Summit in Boston in June. De Leon said that global firms need to normalize various types of data across multiple platforms to achieve best execution.

“He points to the presence of data accessibility, such as granular tick data, for the analysis of US Treasuries and futures but asserts that beyond these instruments, fixed income data is sparse and difficult,” she wrote. “Thus, managing information and data becomes a big problem – firms have many products and many people executing, and have to be sure that what’s being done is meaningful.”

Blater continued that the MiFID II measure of liquid bonds has fallen short of expectations and Trace, the US reporting system for bond trading,  remains a good but imperfect vessel. Therefore, the sellside is being asked to step in and provide clients with superior market and evaluative data.

“This will foster the transaction cost analysis and data provider arms race—which is only won by offering cutting-edge technology, seamless integration, and custom client solutions,” Blater added.