Richard Schiffman

Open Trading Product Manager

Market participants are trading more on MarketAxess Open Trading™, the largest all-to-all credit network

Our Open Trading solutions, designed to improve liquidity in the corporate bond market, continued to gain significant traction in 2014. During the year, over 77,000 all-to-all Open Trading transactions were completed on MarketAxess, representing $38 billion in traded volume.

In the fourth quarter, secondary credit market conditions shifted with increased credit spread volatility, mutual fund outflows and rising credit spreads, putting a spotlight on the importance of strengthening bond market liquidity, and increasing the demand for e-trading.

The chart below shows the acceleration in adoption of Open Trading.

Chart: Open Trading Growth
Click to Enlarge

In Q4 2014 we saw a 90% increase in 'prices back' – prices in response to anonymous, all-to-all Open Trading inquiries as compared to a year ago. And the number of Open Trading transactions completed during the quarter more than doubled year over year.

The number of participants on MarketAxess using our Open Trading protocols is also expanding. In the fourth quarter alone, over 300 different firms (price makers) provided liquidity to our Open Trading platform. And, over 450 firms benefited from this additional liquidity during the year by completing Open Trading transactions.

Chart: Firms Responding to Market List Orders
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Some observers think of Open Trading primarily in terms of client-to-client trading. But one of the distinguishing factors in our Open Trading success is the inclusion of a large base of dealers, investment managers and alternative market participants in the same trading pool.

Chart: 4Q14 Market List Liquidity Providers
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About 43% of the prices back come from investment managers, and about 33% come from our major and regional dealer network. In the ‘Other Market Participants’ category, we see growing activity from hedge funds and ETF market makers.

Today, 7% of trades on MarketAxess are done using Open Trading protocols, up from just 2% at the start of last year. Although this still represents a small portion of overall volumes, Open Trading is gaining momentum as participants become increasingly comfortable in embracing these new trading options.

Chart: U.S. High Grade Composition of Trade Count
Click to Enlarge

These results mark a promising step in evolving the corporate bond market to meet the challenges posed by the buildup of institutional portfolios in recent years even as regulatory approaches have put constraints on traditional market making capacity. Open Trading represents the beginnings of a new base of liquidity in a much larger global credit market, with U.S. high-grade new issuance of over $1 trillion in 2014, up more than 9% from the robust levels in 2013.

In January 2015, we launched Open Trading for the European credit markets. We did this at the same time as we announced the extension of our strategic alliance with BlackRock into Europe, where investors and dealers are facing many of the same liquidity challenges as in the U.S.

To help our dealer and investor clients more effectively manage their risks, MarketAxess has developed a full range of trading protocols and capabilities to promote greater liquidity, a product of our significant, continuing investment in liquidity solutions over more than a decade. With more than 1,000 active investment and dealer firms on our network, MarketAxess now accounts for 86% of the electronic trading in investment grade corporate bonds and 95% of the electronic trading in high yield, according to a recent survey by Greenwich Associates.

Over the long haul, expanding liquidity options will require continued changes in investors’ behavior as they grow more accustomed to a market in which they both make and take prices. The Greenwich Associates survey supports the need for expanded liquidity options including dealer-provided pricing. “Access to new liquidity providers” and “dealer-provided pricing” are the two most important criteria when selecting a trading platform, from top-tier investment firms to hedge funds alike.

Our conversations with regulators underscore their continued interest in strengthening the structure of the corporate bond market and addressing liquidity concerns. To that end, we continue to work closely with a broad range of institutions and firms on the adoption of our Open Trading tools as market participants seek to take control in an ever-changing market environment.

Additional sources: "U.S. Corporate Bond Trading: A Multitude of Platforms Give Investors Options." Greenwich Associates. January 2015.

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