When a huge institutional money manager gives its seal of approval to a comparatively small, niche trading platform, chances are the latter entity will feel a tailwind.
That was the case this week, when BlackRock and MarketAxess agreed to work together to build a better platform on which to trade corporate bonds.
For BlackRock, the alliance is a departure from its previous plan to build out Aladdin on its own, with goals of improving liquidity in credit markets and improving the value proposition of the platform.
“The MarketAxess network has been established over the past decade and it’s not easily replicable,” said John Bichelmeyer, portfolio manager at Buffalo Funds, which owns MarketAxess shares. “BlackRock was wise enough to recognize that.”
“The benefit for MarketAxess is not monumental from en economic standpoint, but it does remove a deep-pocketed competitor and it will be more of a streamlined operation, with direct connectivity and fewer steps for the end user,” Bichelmeyer told Markets Media. “It tightens up the competitive landscape and further entrenches MarketAxess as a market leader.”
Under terms of the agreement, MarketAxess will run electronic trading and broker-dealer operations, which will be connected to BlackRock’s enterprise investment system, Aladdin, that hosts $14 trillion in BlackRock and Aladdin client assets. According to a joint release,BlackRock will provide buy-side leadership, input on strategic direction, and innovations in trade execution capabilities for clients. The two firms will work together on product and business development.
“We are very pleased that they decided the best way to way to facilitate their goals is to combine their work with MarketAxess,” said Rick McVey, chief executive of MarketAxess, on an April 24 conference call.
MarketAxess’ investors were pleased as well, as shares rose by more than 6% from earlier this week. MarketAxess’ market capitalization is about $1.6 billion, compared with BlackRock’s $45 billion.
Market participants connected to Aladdin comprise a “very powerful community” representing 30% of publicly traded corporate debt in U.S. markets, McVey said.
McVey said most Aladdin clients also use MarketAxess, “however the work we contemplate involves much deeper integration between the Aladdin enterprise investment system and the MarketAxess trading system.” BlackRock and Aladdin talked for a year about partnering, McVey said.
