In the expansive and fragmented traded corporate bond market, it’s imperative for institutional traders to leave no stone unturned when searching for liquidity.
Years ago, an investment firm with a buy or sell order would dial up a trusted sell-side broker as the first and probably second option, and perhaps supplement that by logging on to an electronic platform or two to check bids and asks. As liquidity channels have broadened beyond traditional dealer-to-client cash bond trading, the buy side needs to adapt to a faster and more connected market.
“It used to be a fairly simple playbook with only a few different things, like voice trades and RFQs,” Chris Bruner, Head of U.S. Credit Product at Tradeweb, told Trader TV. “Now what we see is that playbook expanding as more tools come into the marketplace.”
Enter Tradeweb AllTrade, a connection of liquidity pools that provides anonymity for its participants. AllTrade combines liquidity from all credit market segments, ranging from a firm’s closest and most familiar trading counterparties, to newer protocols such as session trading and access to live streams from its retail network.
Bruner describes AllTrade as an all-inclusive option, which convenes thousands of market participants using multiple trading protocols. “At the core of it is our RFQ platform, which has institutional clients and dealers taking liquidity from hundreds of other firms on the platform,” Bruner said. With AllTrade, “it's really easy to access both your attributed relationships, as well as anonymous counterparties, i.e. the hundreds of people you might not have a relationship with.”
To be sure, for liquid bonds and smaller trade sizes, having more potential counterparties is better than having fewer, but it comes down to how does the expanded market ecosystem -- in conjunction with time- and cost-saving efficiency tools, and better data utilization -- help traders achieve better trading outcomes.
Corporate bond traders, and trades, within AllTrade are highly disparate: some trades might be $25,000-$50,000 retail size, followed by a 100-item list of institutional trades in the $2 million to $10 million range. Just as unstructured data needs to be normalized to be usable, so too do disparate credit trades need normalization to have a chance of connecting with one another.
“Clients need a combination of relationship liquidity and non-relationship liquidity to increase their efficiency,” Bruner said. “We find they're actually very knowledgeable about how they want to trade and the best ways for them to extract liquidity. We provide the normalization layer, so lots of different clients can do it the same way.”
The value proposition of AllTrade aligns with an increasingly electronic corporate bond market, deeper electronic liquidity, and an expanded set of protocols compatible with electronic trading. According to a Greenwich Associates report published in Q2 2020, 47% of investors surveyed in Q4 2019 were spending less time on the phone than they were a year prior.
“Recent conversations with large asset managers, hedge funds and dealers tell us the market is convinced more electronification is coming,” the Greenwich report said. “Estimates for how much volume will be traded electronically in three to five years range from 40–50%. This seemed crazy only five years ago but does not seem crazy anymore.”
The episodic market volatility in 2020 has had lessons for liquidity-seeking traders, according to Bruner. “One is around diversity and maximizing your reach, and being able to do it in an efficient and instantaneous manner,” he said. “The second lesson that we've learned is that the importance of your strongest counterparties remains paramount.”
Note: Tradeweb AllTrade comprises the Tradeweb Institutional Platform operated by Tradeweb LLC, the Alternative Trading System operated by Tradeweb Direct and the intermediation activities performed by Tradeweb Direct which provides anonymity to its institutional and broker dealer clients.
