MarketAxess has long been at the forefront of the evolution in emerging markets bond trading and is now spearheading the next changes in the globalisation of the business. Its Open Trading architecture is connecting ever more participants and cutting trading costs, its automated trading innovations are freeing up traders for to do more valuable work, and its roll out of a request-for-market protocol is fundamentally changing market structure across all markets.
The MarketAxess platform now boasts more than 1,400 active emerging markets participants — with trading volume hitting $376bn by the end of August this year, making it the largest liquidity provider in EM by both trade count and volume.
“If you’re an asset manager you don’t look at one or two emerging markets, you look across the globe to meet your investment needs. We offer a full emerging market external debt complex alongside 26 markets denominated in local currency spanning Latin America, CEEMEA and Asia Pacific,” says Craig McLeod, head of emerging markets at MarketAxess.
The key to its success has been increasing the penetration of Open Trading, an anonymous-to-anonymous trading infrastructure, which now accounts for 44% of volume, nearly doubling in the last two years. “The cost savings have been dramatic for investors,” says McLeod. “It’s a very efficient channel for investors to transact efficiently and get alpha back into their funds.”
Open Trading has also proved a key tool for dealers. Whereas traditionally, traders only really had access to their dealer-to-dealer channels, now they have access to liquidity from anywhere in the world. It creates an even landscape regardless of participant type, says McLeod. Dealer adoption of the request-for-quote protocol is now the fastest-growing liquidity-taking segment on the platform as dealers search out the natural holders of liquidity in local markets.
The big push over the last year has been in MarketAxess’s onshore domestic presence. It has taken a platform that was originally built to service global clients that wanted to trade global EM debt and, by engaging on the ground in local markets, has onboarded regional and local dealers.
“What we’re most proud of this year is taking our offering and tailoring it to the needs of domestic investors,” says McLeod. “We’ve done it in 26 markets and it’s been different 26 times. We leverage a lot of people across the business to understand the nuances of each market, a true team effort.”
The benefits to MarketAxess extend beyond the increase in liquidity on its EM platform since clients brought on board for emerging markets trading also often have big allocations into other asset classes.
MarketAxess is now seeing more changes ahead in EM, particularly around the success of its request-for-market protocol which already accounts for around 30% of volume in local markets. “There are these perceptions that EM is far behind on the e-trading curve but the success we’re seeing with the request-for-market protocols show that that isn’t the case,” says McLeod.
The take up of RFM — two-way pricing for block trades that prevents information leakage — in emerging markets is a portent of more to come. “We see going forward a complete alteration of market structure where EM has appetite to move to a live market order book scenario given the movement in algorithmic pricing,” he explains.
Automation is becoming far more widespread across electronic platforms as market participants become more comfortable letting algorithms take control and using data to make decisions. At MarketAxess that means offering clients and dealers functionality in Open Trading to set up rules and parameters that allow them to automatically respond to enquiries.
“Our auto-responder technology effectively allows clients to be an automated market maker — client becomes dealer,” says McLeod. “We’re taking what people conduct electronically on a platform, and giving them a driverless version where they can free themselves up to focus on high risk trading, rather than doing high volume small ticket size.”
