A great initiative for liquid bonds, but what about illiquids? That will be TradeSmart, using data to find liquidity.
Richard Schiffman, head of Open Trading at MarketAxess, said the firm expects to extend its new Live Markets protocol to Eurobonds in the first quarter of next year to help fixed income trading become more automated.
The electronic fixed income trading venue launched Open Trading in 2013 to allow sellside and buy-side participants to both supply and take liquidity.
In the first quarter of this year Open Trading volume was $134bn (€120bn), two-thirds higher than in the first three months of 2018, and represented one quarter of MarketAxess’ total global trading volumes. The firm estimated that the additional liquidity led to transaction cost savings of $51m for liquidity takers and $44m for liquidity providers in the first quarter of 2019.
Schiffman told Market Media: “Request for quote is the flagship protocol for Open Trading and is suitable for trading the vast majority of bonds. There is a narrow segment of bonds where all market participants can benefit from continuous liquidity, similar to an equity order book.”
This month MarketAxess announced the launch of Live Markets, a new protocol for Open Trading, which is due to launch in the second half of this year for US investment grade corporate bonds.
Live Markets will create a single view of two-way, actionable prices for the most active bonds. Schiffman said: “Clients will benefit from Live Markets by receiving improved pricing as well as a highly efficient trading protocol.”
In addition, executing in Live Markets gives evidence of best execution as the platform provides details of the quotes in the market at that point in time.
Schiffman said three categories of bonds will eligible for Live Markets – the first two weeks of trading for new issues, large active benchmark bonds with the highest liquidity score and bonds of issuers that are in the news.
“Active market makers will be able to stream prices but individual traders can also manually make prices inside the bid-offer spread,” he added. “We expect market makers will include alternative liquidity providers such as ETF market makers, hedge funds and other firms utilizing credit arbitrage strategies.”
Live Markets will address approximately 25% of total investment grade TRACE volumes based on observed trading in the more active issues according to Schiffman. TRACE is the US fixed income trade reporting system.