Deutsche Bank, UBS, RBS Said to Mull Selling Tradeweb Stakes – Bloomberg
September 30, 2016 \ 10 Comments
Full Article: Bloomberg
Deutsche Bank AG, UBS Group AG and Royal Bank of Scotland Group Plc are considering selling their minority stakes in Tradeweb Markets LLC, a bond and derivatives trading system, according to people familiar with the matter.
This seems to make a ton of sense. There is really no reason for the tertiary dealers to still be involved in TradeWeb. Based on MKTX valuation their TW stakes should have some decent value. Cash in and still participate on TW if it still fits your biz model. Plus, if the dealers let go a little maybe we can see some bolder moves out of TW as dealer ownership, board presence and overall influence diminishes.
See value in dealer support for new initiatives, not well capitalized market leaders.
Is this the end of bank-owned consortia? maybe… Innovation over the years, especially in fixed income, has been bank-led/dominated/owned/controlled/all-the-above or -sometimes- exchanges. Those days are probably over.. at least from the bank investment side.
Can’t decide what is more interesting about this situation, the fact that 3 dealers have come to the conclusion to sell at the same time (Fire Sale?) or that these dealers were 3 of the less powerful (sorry DB) dealers in the TW consortia? To the uninformed, the Tradeweb consortia was formed in 2007 when 9 dealers paid approximately $180MM to purchase a minority stake in TW (http://www.wallstreetandtech.com/trading-technology/breaking-news-thomson-plans-to-spin-off-tradeweb/d/d-id/1258992?). However, what was most interesting about this deal was this clause: “Under terms of the deal, the brokers are investing $180 million in Thomson’s established markets. Separately, Thomson and the dealers will… Read more »
Do you guys remember who Jimmy McMillan was? I bring him up because there’s a self-evident truth here. The costs associated with TW are too damn high (thanks Jimmy!) and the EUROPEAN banks are rumored to be seeking an exit. The move to electronic trading that the founders of TW anticipated was a no-brainer and the entire industry was working hard to get it right. Having a consortia of the biggest players support it made it happen (nod to BrokerTec as well until the Justice Department stepped in). What wasn’t clear to anyone was the havoc that regulation-solving-yesterday’s-problems would create… Read more »
“For these dealers [UBS, DB, RBS], the game of preventing innovation in fixed income is not one that serves their long term interests. What will be most interesting is to see which of the remaining superpowers doubles down and buys their stake. ” This resonates with me. The value for dealers investing in TW is that they can control which portion of the market they cede to electronic trading. Thus far, whether by MKTX or any other provider, what has been ceded to electronic platforms has been lower margin oddlot.and/or liquid bond business. It will be interesting to see what… Read more »
I respectfully disagree with Jester. In relative terms: What other platforms have innovated into additional asset classes in a meaningful way? Moreover, TW has vastly added Credit pieces: IG, HY, LatAm, CDS Index, CDS Single Name. In addition, TW have added Dealer to Dealer credit trading platforms such as Odd-lot Sweep, and Mid Match as well as D2D CDS.
Wolfman – Please note: For dealers: TW fees are HALF of MKTX for HY and over HALF for IG. For the buy-side: TWfees are roughly ONE THIRD that of MKTX. TW offers the Credit market leverage.
The themes of , regulation, lawsuits, financial health all tie into why this likely makes sense for these 3. Unfortunately for the 3, the cash generated from the sale is like putting a strand of scotch tape over end of a firehose. As Jester said, let’s see what the generals do. So maybe if they sell, Tradeweb gets to try to be more innovative. Unlike MKTX, the majority of TW markets are fairly liquid, and have well established potential competitors. The former owners have a liiiiiitle bit less interest in supporting the current TW models. The baby gets to stand… Read more »
What is TW worth if the dealers no longer have a financial stake? I say not much. Yes, being out from under the thumb of the dealers may allow them to innovate, but the whole reason they exist is to slow down innovation in the OTC markets. It is very difficult for large firms to innovate and this is especially the case at TW. Why do I say that? Because they do not have a culture that rewards innovation. They have a culture that rewards protecting dealer market share. It will take a long time to change this culture and… Read more »
Piggybacking off Chipper’s comment, to me, this is a classic example of how ‘protectionist’ culture eventually leads to a company’s demise. Existing to slow down innovation is never a good business model! What will it take for the Fixed Income markets get religion on this?
I have to go with Hollywood on this one. TW, even with the burden of the dealers, has done a good job of expanding into a much broader product set than MarketAxess who still somehow manages to con both the buy and sell side into paying exorbitant access fees and transaction costs.
At the same time, they missed and seem to continue to miss multiple opportunities to create a better value prop in NA credit and now are watching MKTX move into a Muni space that TW should have already had to themselves.
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