By Katy Burne
MarketAxess Holdings Inc. said the dollar value of trades
conducted through its direct bond-trading tool more than tripled in
the first quarter from a year ago to a record, a sign market
participants are testing out new electronic-trading methods to
combat challenging market conditions.
The tool, called Open Trading, matches buyers and sellers of
corporate bonds without using banks as middlemen. Sales using the
system constituted 9% of MarketAxess trading volume during the
quarter, up from 7% in the fourth quarter and zero in 2013, the
company said.
Rick McVey, chief executive of MarketAxess, said the gains show
any participant in the bond market can trade with anyone else, a
concept known to traders as "all-to-all" trading.
Such trading is "now a meaningful source of liquidity," said Mr.
McVey. He estimated that investors are saving $1,800 per $1 million
of investment-grade bonds sold or purchased, relative to prices
available at large banks.
New regulations are causing banks to ratchet back their
participation as middlemen in the corporate bond markets, in some
cases cutting their securities holdings by as much as two thirds
from precrisis levels. At the same time, a wave of corporate debt
issuance has expanded the amount of bonds outstanding.
As a result, investors have been weighing other ways to buy and
sell when interest rates rise from rock-bottom levels. When rates
rise, it tends to hurt the value of existing bonds.
Among those most affected have been high-yield bond prices,
which have been hard hit by the oil-price slump of the past year.
About 14% of high-yield trades on the MarketAxess systems are now
taking place using Open Trading protocols.
Two years ago, MarketAxess sealed an alliance with BlackRock
Inc., the world's largest asset manager. They recently expanded
their U.S. partnership into Europe, and BlackRock has integrated
MarketAxess portals into its own trading system, known as
Aladdin.
Richie Prager, global head of trading and liquidity strategies
at BlackRock, said in a statement: "Open Trading has enabled new
types of participants to enter the market as price makers,
representing a valuable new source of liquidity."
The tool puts a range of corporate bond traders into one
centralized network, allowing them to buy or sell from one another
anonymously. Users include asset managers, hedge funds and
proprietary trading firms, as well as firms that facilitate trading
in exchange-traded funds and big banks that are trying to shuffle
bonds off their balance sheets.
Some 346 individual firms participated in Open Trading in the
first quarter, and a total of $18 billion trades were completed,
versus $6.6 billion in the final quarter of last year, MarketAxess
said. Mr. McVey declined to say how much of the growth was
attributable to BlackRock funds.
Richard Schiffman, product manager for Open Trading, said
investors have been working larger trades through the new tool,
particularly for bonds with maturities of two years or fewer and
trades around $5 million. The average trade size on MarketAxess is
$600,000, although the company has seen trades of over $50
million.
MarketAxess recently added continuously updated pricing from
Interactive Data Corp. The prices "help provide context for
participants on the platform" as they negotiate a final price, Mr.
Schiffman said.
Write to Katy Burne at katy.burne@wsj.com
Access Investor Kit for BlackRock, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US09247X1019
Access Investor Kit for MarketAxess Holdings, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US57060D1081
Subscribe to WSJ: http://online.wsj.com?mod=djnwires