MarketAxess, which operates a fixed income electronic trading platform and provides market data and post-trade services, had record use of automation in the first quarter of this year as customers are looking to increase efficiency across products and geographies.
Gareth Coltman, global head of trading automation at MarketAxess, told Markets Media that despite the rise in volatility in the first quarter of this year there has been increasing recognition that electronic trading is a superb way to remain connected in times of market stress and this is reflected by the growth across MarketAxess’ range of tools and protocols.
“It is not a case of clients returning to the old ways of doing things when volatility arrives,” he said.
Rick McVey, chairman and chief executive of MarketAxess, said during the first quarter results presentation that trade automation reached a record in terms of trading volume, trade count and active clients.
Coltman said: “These tools are being institutionalised into traders’ workflows and clients increasingly depend on these tools to carry out the significantly higher volumes of activity.”
He highlighted the growth in the use of Auto-X despite the increase in volatility, which was in contrast to the decline in usage during the pandemic.
Auto-X allows buy-side clients to automate the submission and execution of request for quote (RFQ) orders. When spreads widen, Auto-X automatically adapts to make sure trades are occurring within the market context and questionable trades are sent back to the human trader to be evaluated.
"Clients have been willing to push the boundaries in terms of automation,” said Coltman. “They were initially focused on investment grade products in the US and Europe, but we are starting to see traction in the other products and across Asia."
MarketAxess also had a record quarter for the use of Auto-Responder with nearly 8,000 responses generated automatically which Coltman said created significant cost savings for clients. Open Trading Auto-Responder allows buy-side clients to respond to inbound RFQ opportunities automatically in Open Trading, the firm’s all-to-all trading model.
“I spoke to a client who was responding on a wide set of high yield names,” he added. “They can set that up in advance so they never miss an opportunity to capture that cost saving when it is available."
MarketAxess is also experimenting with workflows around Auto-Responder with, for example, the ability to launch RFQs at the end of the day.
In addition, MarketAxess is actively building out technology for Adaptive Auto-X to create more sophisticated workflows for clients this year and allow them to make use of MarketAxess’ various liquidity pools. Adaptive Auto-X connects multiple trading protocols available via Open Trading.
For example, a client might want to look for passive liquidity in multiple sources at the same time.
“A client would be able to set parameters for their workflow and interact with liquidity wherever it is available across a range of protocols,” said Coltman. “Clients view this as a natural next step in market structure."
In addition, due to the growth of fixed income exchange-traded funds there is a lot of interest in trading on new protocols for bonds that are in an index.
In March 2022 MarketAxess launched the MKTX U.S. Investment Grade 400 Corporate Bond Index, which uses its proprietary Relative Liquidity Score and Composite+ pricing engine to construct an index which it said has improved liquidity, transparency and high availability of the constituent bonds.
MarketAxess is also thinking about innovative ways for clients to trade large blocks without having significant market impact, particularly in difficult market conditions.
Results
MarketAxess reported revenues of $186.1m in the first three months of this year, which was the second highest level ever of quarterly revenue.
https://twitter.com/MarketAxess/status/1516814544341028873
Total trading average daily volume rose 22% from a year ago to a record $37.5bn, principally driven by all-time high average daily volumes in U.S. Treasury of $25.1bn, in emerging markets of $3.1bn and in municipal bonds of $288m.
Total credit average daily volume in the first quarter was $12bn, down 3% year-on-year, but still the second best quarter of total credit trading volume.
McVey said in a statement: “This strong performance reflects the excellent strides we have made in executing our growth strategy, expanding our geographic diversification and establishing a broader foundation for growth. We have delivered these results as market conditions continue to improve, with wider spreads and increased spread volatility driving significant cost savings for our clients through Open Trading, our differentiated liquidity pool.”
MarketAxess said Open Trading had delivered an estimated $201m in transaction cost savings for clients in the first quarter of this year, surpassing levels from a year ago.
"Use of Open Trading is ubiquitous within our client base and firmly established as a standard part of the workflow,” said Coltman.
