‘All-to-All’ Bond Trading in Europe Strengthens

Shanny Basar

MarketAxess had record trading volumes in Europe for its all-to-all Open Trading protocols on the electronic fixed income trading platform in the first quarter of this year with the buyside providing half of the liquidity.

Global clients, including from the US, traded $944m (€833m) of European credit products via Open Trading in the first quarter of this year, up 140% from the fourth quarter of last year according to MarketAxess. In addition $4.8bn was traded by European clients via Open Trading across European and US credit products in the first three months of this year, up 73% from the final quarter of 2015. MarketAxess said investor and dealer participants provided liquidity evenly in Open Trading for European products in the first quarter of this year.

Gareth Coltman, head of European product management at MarketAxess, told Markets Media that Open Trading for European credit products went live in February last year. “There is no reason Europe cannot reach the same level as in US,” he added.

Open Trading launched three years ago in the US and comprises 12% of total MarketAxess volumes in high-grade corporate bond trading and 20% in high-yield. In fixed income, asset managers have traditionally bought and sold bonds with dealers, who have provided liquidity and set prices. However an all-to-all market allows multiple parties to come together, for example buyside firms can trade between themselves and fund managers can provide liquidity. As regulations have forced banks to cut their balance sheets, fund managers have said it is harder to find liquidity in fixed income and have been looking for new ways to trade.

BlackRock said in a white paper ‘Addressing Market Liquidity’ in September 2014 that both the buyers and the sellers of bonds need to adapt their behavior and become price makers, not just price takers. “In addition, all-to-all electronic venues and other agency-like structures need to develop further,” added the paper.

There are a total of 23 dealers and 220 European investor clients live on Open Trading with more waiting to be signed up according to Coltman. The Desk’s Trading Intentions Survey 2016 found that the platforms currently most effective at sourcing liquidity are Bloomberg and MarketAxess as a close first and second, followed by Tradeweb, Algomi and then Liquidnet, B2SCAN and UBS PIN.

The ‘big three’ trading platforms used by the largest share of the buyside were Bloomberg, MarketAxess and Tradeweb. The survey said: “Each has fought to increase their use, by either offering new ways of trading – such as MarketAxess’ all-to-all Open Trading model and Tradeweb’s BondDesk – or by offering new tools to support trading activity, such as Bloomberg’s Liquidity Assessment Tool. Bloomberg has managed to develop the deepest relationships, given it has the greatest proportion of ‘major users’, but the balance between the top three is still close.”

For the second year in a row Liquidnet, Algomi and Neptune were first, second and third as platforms that traders plan to use in the future according to The Desk. The survey had 70 responses from North American, European and emerging market credit desks spread across 34 investment managers, with an aggregate of €15.4 trillion in assets under management.

Coltman said the most popular trading protocol on Open Trading is anonymous request-for-quotes, where MarketAxess stands in the middle of the trade so that names do not have to be disclosed. Clients and dealers looking for liquidity make visible bid/offer wanted inquiries anonymously to all participants who did not receive the inquiry directly. This allows asset managers to interact with dealers with whom they might not have a direct relationship and vice versa.

There is also an open order book combining dealer inventory and axes with client axes where orders can be privately negotiated on a bilateral basis for larger trades.

Coltman said MarketAxess will introduce new trading protocols for Open Trading and integrate more pricing and data products from its Trax subsidiary into its trading platform. Axess All, an intra-day trade tape for the European fixed income markets, launched in February last year as the region does not have the Trace fixed income reporting facility that is available in the US.

“If the buyside is providing more liquidity they need new types of information,” Coltman added.

In MarketAxess’ first quarter results call last month, Richard McVey, chairman and chief executive said the firm had a strong start to 2016. McVey said in a statement: “We continue to invest in new Open Trading protocols, expanding our capabilities outside of the United States and extending our trading platform to new product areas.”

In the US last month MarketAxess added municipal bonds to its trading system, including all-to-all Open Trading.

Featured image via iStock

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