Liquidity has been and continues to be among the highest of priorities in capital markets. Sourcing for liquidity also remains a big challenge, particularly through traditional channels, since it has become more fragmented.
Traditional liquidity providers are being pushed into a corner by capital adequacy and solvency rules, thereby restricting balance sheets to asset classes. As a result of growth in Asia, this challenge has been amplified due to its natural fragmentation of the client base. Also, regional liquidity providers have become part of the global balance sheet, while clients play a bigger role in holding inventory.
In the past, fixed-income participants have traded with a limited pool of local investment brokers over the phone or via message boards, leading to some difficulties in accessing the best priced bonds and execution costs.
Asian investors are also taking a more global approach in their hunt for higher returns. This has created another challenge, in addition to onboarding and maintaining regulatory checks of disclosed liquidity provider relationships.
MarketAxess has made strides to tackle these issues with its Open Trading electronic all-to-all bond marketplace.
The firm spent years building out Open Trading’s functionality and market data capabilities since the platform’s launch in 2012. Today, it connects a global community of more than 1,500 institutional firms trading credit instruments.
One benefit is that it is an integrated platform with multiple protocols, combining dealer and buy-side liquidity, which helps to reduce transaction costs.
All protocols use existing pre- and post-trade connectivity and straight-through processing, and traders have full control over how and when their order information is shared.
In an environment where liquidity remains challenging, MarketAxess is providing an innovative way to get trading done and is now part of our approach to liquidity sourcingA head of trading for Asia at a global asset manager
Some of the protocols offered by Open Trading include Market Lists, which allows investor clients and dealers to send their request-for-quotes to dealers on a disclosed basis, and to all participants anonymously for multiple bonds.
Meanwhile, Public Axe is an order-book public bulletin board, where firms can share buy and sell interest in a private, two-way negotiation, with the option to increase size once levels have been agreed.
A head of trading for Asia at a global asset manager says the Open Trading protocol has broadened the global liquidity pool, as well as enabling traditional buy-side investors to become price-makers.
“In an environment where liquidity remains challenging, MarketAxess is providing an innovative way to get trading done and is now part of our approach to liquidity sourcing, which undoubtedly benefits our investment process,” the manager said.
MarketAxess has also enhanced its workflow capability, providing dealers with better access to Open Trading liquidity pools by allowing them to respond to anonymous pricing enquiries just as it discloses them – through the platform’s workstation or its application programming interfaces.
This allows buy-side clients in Asia to augment fragmented liquidity. As a result of its 1,500 trading connections, the platform works to improve liquidity and reduce transaction costs for Asian fixed-income market participants by connecting clients on the buy side to clients on the sell side.
For example, the company said it observed a client in Hong Kong trading with a client in Brazil at a 25% cost saving, with 25% of the bid/ask spread.
Clients and dealers using Open Trading can trade sovereign, corporate, municipal and emerging market bonds in a single marketplace. Protocols are integrated into its multi-dealer request-for-quote trading system, leading to single-screen access for all fixed-income market liquidity.
Open Trading has increased its market share over the past few years. In 2017, 11% of all Asia volumes traded on MarketAxess were done through the Open Trading network. This year, the figure stands at 24%.
According to the company, in the first half of this year, institutional investors and brokers using Open Trading in Asia saved an average of 40% of the bid/ask spread.
In March 2018, MarketAxess expanded its presence in Asian credit markets through its partnership with BlackRock. It will continue to develop the platform and its list of trading protocols.