Buy Side Provides More Fixed Income Liquidity – Markets Media
June 17, 2016 \ 13 Comments
Full Article: Markets Media
“In Europe, 55% of (MarketAxess) Open Trading volume is buy side-to-buy side and approximately 50% on a global basis. There has been a significant behavioural change but we are in the early days of buy side providing liquidity.”
I think MKTX is doing a remarkable job of maintaining its dominance in the N.A. credit space while trying to take market share in Europe (unclear to me that it has). And I applaud all of the efforts with their All to All trading efforts with which Mr. Schiffman is doing an excellent job of adding protocols and features to address buy side clients ‘wants’. However, 600mm a day is about 10% of global volume. And the article reports 50% of open trading trades are buy side to buy side. So what we really have is 300mm/day globally or about… Read more »
Good points all … the market structure is in an unstable equilibrium .. but maybe market structures are always thus?
One clarification question .. “600mm/day is about 10% of global volume” – that would put global volume at $6B … average TRACE volume is 30B – so am missing something here? Thanks!
Sorry, for being unclear. I should have said “…about 10% of MKTX global volume”.
I’m a fan of Open Trading in the sense that MKTX took an early view and were not afraid to just about back every protocol going to make sure they had the right one. They were not afraid to back a few losers to make sure they got something that would resonate in due course. It may be that some of the under used protocols come to the fore in the future. However it is all relative. The 1% rings true and is consistent with what you hear from the big buy-side guys…”C2C is great but will only capture 1-2%… Read more »
Private Axes sounds like Liquidnet: Dark pool. Articles have quoted Liquidnet averaging roughly $45MM a day in trade volume. Given the market structure of the corporate bond market, a dark pool is perhaps the last trading tool one would use. In general, in the most liquid bonds, trading participants use ECNs for micro lots, RFQ for odd lots, and voice for round lots and blocks. These solutions, for the most part, solve for immediacy and exact size. The struggle is in the large blocks and illiquid bonds. The matching opportunities for blocks and illiquid bonds are not great. Some have… Read more »
“in the most liquid bonds, trading participants use ECNs for micro lots, RFQ for odd lots, and voice for round lots and blocks. These solutions, for the most part, solve for immediacy and exact size. The struggle is in the large blocks and illiquid bonds.”
Pretty much a great summary of current state – question is whether there is an evolutionary path for e-Trading out of the liquid micro-lot world, or is e-Trading destined to remain just for micro-lot liquid bonds forever?
If I’ve learned any single truth, it is that people will act in their own self-interest. That goes for people defined as individuals, families, corporations, banks, governments and on and on. These new technologies are introducing new market structures and are reacting to the new global regulatory framework. The fact hat there is a growth in buy-side-to-buy-side trading should come as no surprise. Nor should we discount the Interdealer brokers’ move to supplement the diminished dealer liquidity with buy-side liquidity. Everyone acting in their own self interest. Every day, traditional retailers are closing -yesterday’s announcement that the Sports Authority was… Read more »
I agree with Merlin – Dealers are absolutely choking on MKTX fees. Dealers’ FI opportunity has decreased, however, their MKTX fees have not changed with the times. For IG, most dealers pay a very high fixed fee. MKTX also marks up or down dealer responses. This mark-up is a fee to the buy-side that MKTX makes dealers collect FOR MKTX (dealers doing their dirty work)! . Ironically, MKTX calls this a “dealer fee”. In HY, dealers pay MKTX a 1/16th on volume – crazy. In addition, dealers are being dis-intermediated by MKTX through Open Trading. Something has to give. MKTX… Read more »
I agree with all this– you nailed it on the head.
One more important point: Market Axess is offering a “free” pre-trade solution, wherein dealers put the interests of their buyside customers. Theoretically, they know which buyside firm is a buyer of a bond and which buyside firm is a seller of that bond– all because dealers are telling them.
So, assuming MA has a footprint with their pre-trade tool, then the dealer community is seeding Open Trading with trades. Moreover, they are paying outrageous fees for that “privilege”.
For the majority of my thoughts I will simply tip my hat to Hollywood. It is amazing watching it happen. Merlin, you are right, “Dealers have benefitted from being able to anonymously seek liquidity as they transform their businesses to an agency model,” is truly an Orwellian gem. Do I have this suggested workflow right? Agency dealer working an order sends it out anonymously to the entire network? If so, I can imagine the customer thrill of seeing your own order pop up on the screen with a request for bid. That is some serious stealth work my dealer is… Read more »
Excellent click bait Markets Media (slow clap). Congrats to MarketAxess, they deserve tremendous credit for reviving their European business after very poor decisions nearly drove them into obscurity. Now how much market share do they have in Europe?…..don’t answer that. The real question is whether or not this is “the early days of buy side providing liquidity” or not? Well, it that depends. Do you think that responding to a BWIC or OWIC that has odd lot sizes is providing liquidity? If you do, then, yes, these are the early days indeed! The dealers are more than happy to get… Read more »
“”in the most liquid bonds, trading participants use ECNs for micro lots, RFQ for odd lots, and voice for round lots and blocks. These solutions, for the most part, solve for immediacy and exact size. The struggle is in the large blocks and illiquid bonds.” – Hollywood in comments above Pretty much a great summary of current state – question is whether there is an evolutionary path for e-Trading out of the liquid micro-lot world, or is e-Trading destined to remain just for micro-lot liquid bonds forever. For example, can odd-lot e-trading lead to e-traders making round-lot markets by estimating… Read more »
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