05.28.2021
By Shanny Basar

LTX Uses AI To Gain Share In Bond Trading

Jim Toffey, chief executive and co-founder of LTX, said he expects the artificial intelligence-powered corporate bond trading platform to be fully launched and gaining market share with a critical mass of dealers and institutional investors by the end of this year.

LTX  was launched by owned by Broadridge Financial Solutions in June 2020.

Toffey told Markets Media that LTX takes a fundamentally different approach from existing electronic trading platforms. Instead of putting dealers in competition, he said LTX focuses on empowering a dealer’s franchise with artificial intelligence-driven tools and insights to better connect and trade corporate bonds across their vast customer network.

In 1997 Toffey founded Tradeweb Markets when it was a joint venture with four global banks and was chief executive of the electronic trading platform before founding Benchmark Solutions, where he was also chief executive. He was also president of fixed income, equity and retail wealth management at Thomson Financial, after Thomson’s acquisition of Tradeweb.

Jim Toffey, LTX

“Unlike other platforms, LTX combines artificial intelligence with our patented RFX digital trading protocol to maximize liquidity, efficiency, and execution,” Toffey added. “This patented technology empowers dealers to aggregate liquidity across natural counterparties in seconds and enables dynamic, market-driven price formation to occur while delivering improved best execution to their buy-side customers.”

Broadridge announced in March that the U.S. Patent and Trademark Office had granted LTX a patent covering its AI-driven RFX digital trading protocol technology.

RFX allows broker-dealers to intelligently identify and efficiently aggregate liquidity across multiple natural buyers bidding for their desired amount of bonds, which improves best execution.The patent also helps institutional investors understand pre-trade liquidity for selecting the right dealer with the strongest customer network of natural buyers and sellers to intermediate an RFX and increase the likelihood of trade execution.

Toffey said in statement at the time: “Our patented RFX protocol is the most significant improvement for corporate bond trading in the last 20 years since RFQ.”

Toffey continued that over the last few years, the firm has worked closely with dealers and institutional investors to understand their issues and what is missing in the secondary fixed income trading market in order to design LTX and change requests for quotes.

“These issues include lack of quality data to measure true market liquidity, no tools to identify the right buyers and sellers at the right time, and insufficient workflows to execute large trades with multiple counterparties,” Toffey added.

AllianceBernstein became the first buy-side firm to  to sell a large block of bonds and access aggregated liquidity from four buyers at once and in real time on LTX in April 2021.

Tim Kurpis, head of investment grade trading at AllianceBernstein, said in a statement: “Most electronic solutions focus on smaller sizes and liquid bonds, but 70-75% of the corporate bond market still trades over the phone. LTX brings a different approach for accessing liquidity that offers new protocols to better match potential counterparties and allow multiple bids or offers for a bond.”

AllianceBernstein used LTX’s artificial intelligence to identify the potential natural buyers of the bond within their customer network and sent trading in invitations via RFX. Invited customers were then able to state their preferred amount of bonds and improve their price as needed to fulfil their order.

Toffey said similar deals have since taken place. LTX added that the number of RFX sessions on the platform has increased the beginning of this year and the platform recently surpassed $0.5bn in total amount of bonds offered.

“In addition to corporate bonds, trading in other asset classes, like municipal bonds, would benefit from LTX’s patented protocol and AI,” added Toffey.

Electronic bond trading

Kevin McPartland, head of market structure and technology research at consultancy Coalition Greenwich, said in a report there were record volumes of electronic corporate bond trading in March 2021.

Daily volumes were an average of $11.5bn trading via platforms, beating the previous record set only two months prior by 8%.

McPartland said: “We find it amazing that the percentage of high-yield e-trading in March of 2021 (26%) is in fact higher than the percentage of investment-grade activity a year earlier (25%).”

In addition, the consultancy found that trading on all-to-all  markets, where all market participants are able to trade with one another regardless of firm type, accounted for 12% of investment-grade corporate bond trading volume last year, more than double the 8% in 2019.

The survey, All-to-All Trading Takes Hold in Corporate Bonds, said that 85% of corporate bond investors who responded believe there is value in the buy side providing liquidity.

“In 2019, 23% of research participants felt the counterparty to an electronic trading mattered a lot”, added the survey. “In 2020 that share dropped to just 14%.”

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