The institutional credit space is plagued by illiquidity and fragmentation, so any initiative that pools liquidity should improve end users’ chances of finding a suitable trading counterparty.
Such consolidation is a rationale behind Tradeweb’s purchase of CodeStreet, which was announced earlier this week.
“The buy side needs additional means of accessing liquidity,” Chris Bruner, head of U.S. credit product at Tradeweb, told Markets Media. “CodeStreet has a very complementary set of dealers engaged as their current client base, which we plan to grow. Where we’ve had direct connectivity with a lot of the largest dealers on Tradeweb from other product areas, they bring a whole set of additional dealers who we might not have had the same level of connectivity with.”
About 20% of the U.S. credit market now trades electronically, Tradeweb CEO Lee Olesky said on a webinar yesterday. There’s substantial upside in that number, Olesky said, noting that European percentage is about double.
For trading platforms, the focus is on expanding the liquidity pool and helping end users contain costs. The CodeStreet acquisition is meant to do both, by leveraging data science to make the search for liquidity more efficient.
Chris Bruner, Tradeweb
“As we look at the different trade sizes and workflows in the marketplace, a diverse range of solutions is going to be useful for clients,” Bruner said. “Integrating the data and workflow solutions of CodeStreet with our flexible trading protocols is quite a strong combination.”
Founded in 2003, CodeStreet’s raison d’être is to help broker-dealers to use their own data to most effectively exploit trading opportunities. If the sell side trades more robustly, that in turns helps the buy side execute their trades.
“The credit market is not just protocol-driven, it’s still about relationships and identifying the right counterparties for the other side of the trade,” Bruner said. “It’s a complementary acquisition. We are infusing our platform with their trade identification and workflow management solutions, which will accelerate the development of our complete credit offering.”
If CodeStreet clients “can use CodeStreet functionality to access our platform in a similar way as existing Tradeweb dealers, then we’ve delivered a greatly broadened set of liquidity providers and a robust set of capabilities that don’t really exist in one package elsewhere,” Bruner said. .
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