Tradeweb Adds to All-to-All Trading

Shanny Basar

Tradeweb Europe will be introducing all-to-all trading on its credit platform in the region in second half of this year as asset managers are beginning to replace banks in providing liquidity in fixed income markets.

The electronic fixed income, derivatives and exchange-traded fund venue had already announced the launch of all-to-all trading on the US credit platform, which is currently being rolled out. An all-to-all model allows multiple parties in a network to come together to trade rather than the traditional model of only banks supplying liquidity to the buyside.

Enrico Bruni, managing director and head of Europe and Asia business at Tradeweb, told Markets Media: “All-to-all is part of a bigger offering in the credit markets and we also continue to invest in linking axes to execution protocols. There is a lot of focus on improving existing protocols to make workflows more efficient.”

The Financial Conduct Authority, the UK regulator, said in a report in February on corporate bond trading that the quote rate from dealers has declined from 60% several years ago to 52% by mid-2016 which could imply dealers are now less willing or able to provide quotes to clients. Gareth Coltman, head of European product management at rival MarketAxess, said at a conference in February that all-to-all trading has grown to 20% of activity on its electronic bond trading platform, but 80% of activity still relies on dealers.

The FCA continued that another reason for declining quotes from dealers could be the introduction, or more widespread use, of additional innovative functionalities designed to improve execution rates on the electronic platforms. “This includes, for example, providing ‘axe’ information about specific dealers (i.e. which ones already have a position in a given bond and are thus more likely to trade it),” added the regulator.

Tradeweb has found that the conversion rate from buyside enquiries to completed trades increases when a request-for-quote is sent to an axed dealer, so it is an efficient way of connecting liquidity seekers and providers. Axes highlight prices or indications from market-makers to buy or sell specific instruments and are integrated into Tradeweb’s platform to make trading more efficient.

The firm reported that one-sided axes posted by dealers on its Eurobond platform peaked at more than €100bn ($107bn) in the first quarter of this year, up 50% year-on-year. Over the same time period, the number of axes, which link pre-trade information with trade execution, nearly doubled to reach 18,888.

Bruni said Tradeweb has been refining the characteristics of the request-for-quote protocol to increase its flexibility, and will continue to look at ways to expand it further. For example, last year Tradeweb launched FlexRFQ which allows users to replace non-quoting dealers without shutting down their initial inquiry, restricting trade information leakage. The firm recently introduced Blast RFQ in European credit to allow clients to send enquiries to all of their liquidity providers simultaneously.

As the buyside has been finding it harder to trade large blocks in fixed income, the number of tickets has increased as deal sizes have fallen.

“We find that as the buyside are becoming more and more active, many are shifting towards automating smaller size transactions using our OMSX product,” added Bruni. “This is complemented by our data-driven transaction cost analysis solutions to help clients, for example, identify axed dealers and improve the probability of execution.”

MiFID II, the new regulation covering European Union financial markets from 2018, introduce certain pre-trade and post-trade transparency requirements across asset classes. Real-time public reporting of detailed information will be required for a majority of trades across a range of asset classes including fixed income, commodities and over-the-counter derivatives for the first time. Transactions executed on a trading platform can be reported by that venue, while off-venue or OTC deals need to be reported by a counterparty using an Approved Publication Arrangement service.

Bruni said: “We are on track to provide MiFID II compliant solutions for our clients. The new regulations pose an important challenge, but they also present us with opportunities such as our recently launched APA, which has signed up 10 banks.”

MiFID II will also impose new requirements on firms to quantitatively evidence best execution across asset classes, including fixed income.

“With MiFID II we enter a new world, which gives us the opportunity to build technology specifically for consuming and distributing data for the advantage of both the buyside and the sellside,” added Bruni. “There is a lot of focus on data-driven transaction cost analysis, as MiFID II places a lot of emphasis on best execution.”

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