[ I N - D E P T H
means there’s now the ability to price any generic
basket of credit bonds, and that service is now being
deployed in its own right on behalf of the buy-side.”
The rise of fixed income ETFs has essentially been
the gasoline on the fire accelerating the growth of
portfolio trading by calculating a way to get the exe-
cution of the underlying bond sufficiently, so that the
create/redeem process is simplified. The ETF vehicle
has also facilitated more traditional list RFQ trading,
often considered to be the precursor to portfolio
trading.
When it comes to liquidity providers and market
makers, ETFs have changed the way that firms which
service the fixed income space operate. That, along-
side the rise of algorithmic trading to facilitate pricing
and the fact that liquidity providers share far
more data with the buy-side now than ever be-
fore, has created a perfect storm for electronic
trading platform providers to facilitate portfolio
trading for clients.
More than electronification
Tradeweb may have been first off the mark, but
it certainly won’t be the last firm to build out
portfolio trading functionality for credit mar-
kets. In June MarketAxess, a direct competitor
of Tradeweb, confirmed plans to develop its
own portfolio trading platform, also
in response to client demand for
increased basket trading activities.
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P O R T F O L I O
T R A D I N G ]
Speaking to analysts on the
company’s second quarter earnings
call, MarketAxess’ president and
chief operating officer, Chris Con-
cannon, said the soon-to-launch
portfolio trading protocol will
leverage its list trading function-
ality with the ability to request
prices from multiple dealers.
Tradeweb’s platform is currently
bilateral, meaning that it is nego-
tiated and risk is transferred with
a single counterparty, but the firm
is in the process of rolling out the
ability for clients to deal with mul-
tiple liquidity providers, similar to
MarketAxess.
“We see portfolio trading
happening in the market on an
average trading day,” Concannon
told analysts. “We continue to hear
from our clients about how they
are constructing portfolio trades
and putting up portfolio trades.
Right now, the efficiency of that
process and the workflow is very
difficult for both client and dealer,
because it's passing spreadsheets
back and forth… Given the growth
of the ETFs and fixed income ETF
trading, we do think it will allow
our clients to trade more portfo-
lios that they are not currently
trading.”
With MarketAxess and Tradeweb
betting on the adoption of portfolio
trading in credit, the trend appears
to be more than just another shift
towards electronification, but an
opportunity for buy-side traders to
create complex, multi-leg, large-
sized, billion-dollar credit trades
that the market has never quite
seen before. And that’s how you
deal with a billion-dollar credit
portfolio trade.
Issue 61 // TheTradeNews.com // 57