Corporate bond trading platforms are in the new s again. Platforms that have launched innovative all-to-all trading protocols are attracting buy-side firms to their venues. As a result of regulations that caused the dealers to reduce their balance sheets and retreat from market making, MarketAxess developed Open Trading to allow buy-side firms to trade with one another or with the sell side.
In the second half of , MarketAxess reported that over asset managers and 40 banks were using Open Trading in Europe. Asset managers provided half the liquidity on Open Trading during the second half of Among the new protocols launched in June of was Private Axes to let the buy and sell side anonymously advertise their interest and negotiate block trades without market impact.
In January of this year, it had more than different institutional firms and over users. Insurance companies, pension funds and mutual funds hold these bonds but can have a herd mentality. Most of the lack of liquidity is outside of the top 1, bonds and in the other 14, bonds, he said. In the summer of , Liquidnet launched Targeted Invitations in the US and Europe, a trading protocol that notifies the buy side when an institutional buyer or seller has posted liquidity across its network.
For example, the same person might have been a seller of a particular bond yesterday, but returns to the pool as a buyer today. Secondly, it allows someone to seek liquidity in multiple bonds of the same issuer or the same bond. Another feature revolves around substitute bonds, not the same issue, but perhaps finding liquidity in another issue.
Buy-side firms are acknowledging the progress of all-to-all bond trading platforms, but at the same time, they have a hard time integrating disparate systems that cater to specific asset classes within fixed income.
With to electronic trading platforms entering the fixed-income market, this can lead to fragmented liquidity across the various venues. Clearly, all-to-all platforms are still in their infancy. They are bringing more data analysis to the table. Many are working on integrations with third party systems like buy-side OMSs and execution management systems to aggregate liquidity across the credit markets.
Fixed income asset managers like Standish are utilizing a variety of trading protocols ranging from RFQ to all-to-all, depending on the situation.
Time will tell how they evolve, but buy-side participation in all-to-all trading platforms is growing against the naysayers. Raising the Curtain on Treasuries.