MarketAxess: Electrifying Asia’s Bond Markets

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Fixed income traders and investors at Asia’s private banks have confronted a unique confluence of adversity over the past 18 months. It has been a war on many fronts. They have faced unprecedented levels of daily market turmoil arising from the twin effects of Covid-19 fallout and heightened geopolitical strife.

End-client relationships have been simultaneously strained by remote working arrangements during a time of historically low interest rates and, correspondingly, an ever-more-urgent client search and demand for alpha.

All of this came on top of the perennial challenges of operating in a region whose bond markets have been more fragmented, less liquid and therefore more complex to navigate than those of their global peers.

It might seem counter-intuitive, in the teeth of such adversity, to discover that MarketAxess – the New York-headquartered global electronic bond trading platform – saw its Asia private banking business grow at a faster rate than anywhere in the world during these turbulent times. The numbers are compelling. Trade volume for Asian private banks grew by 37% in 2020 compared to a global growth rate of 25%, while the number of private banks’ trades in Asia increased by an even more impressive – and ostensibly beguiling – 62% compared to 21% globally.

How to square the circle? To a large degree, the extent of the region’s challenges drove the nature and magnitude of the solution.

Explains Erik Tham, head of Private Banking at MarketAxess, “The traditional complexity inherent in Asian bond markets has in part been exacerbated by the regional reluctance – relatively speaking – to move from manual voice-trading to electronic trading. 2020 simultaneously turned digitisation from a luxury into a necessity for bond trading desks at private banks and meant that the electronic liquidity and data-driven solutions we provide through our core offerings have been valued by clients as never before.”

Liquidity, liquidity, liquidity. And cost savings.

Liquidity has indeed been the key to the global growth story of MarketAxess since its birth in 1999 and of Open Trading ®, its all-to-all electronic marketplace, now connecting more than 1,800 investor and dealer counterparties in bond markets worldwide. In Asia, where MarketAxess debuted in Singapore in 2010 before adding its Hong Kong operation in 2015, the company now brings together a network of over 70 global and regional dealers and alternative bond liquidity providers.

This has revolutionized price discovery and liquidity in a region where, until very recently, private banks’ bond traders might only have been able to get access to liquidity and prices for even frequently traded bonds from a mere handful of counterparties.

These attributes combined to power MarketAxess’s win in Asian Private Banker’s 2020 technology awards as the provider of the “Best Trading and Execution Platform ”. This was in part a recognition of its ministering to the regional bond markets’ various pain points; partly because it contributed to the tangible development of Asia’s markets through its role as liquidity facilitator amid a pandemic-impaired market environment; and partly because the additional transparency and liquidity it produced helped to drive efficiencies, cost savings and attendant alpha for both private banks’ trading desks and, crucially, their end-clients.

MarketAxess has also been adding Asia local currency bonds to its platform – including Korean Won, Indonesian Rupiah, Malysian Ringgit, Philippine Peso, Singapore Dollar and Thai Baht – and, tellingly, these were the fastest growing sector in 2020, rising 76% year-on-year as of February 2021. As clients engaged more actively throughout the year and their familiarity and confidence with the platform’s pricing grew in tandem, its Request for Quote (RFQ) service in Asia Pacific grew 197% year-on-year.

The entire food chain of private bank stakeholders – from end-clients to relationship managers to investment specialists, heads of bond trading, COOs and CEOs – will also note with interest the direct correlation between increased liquidity and efficiency with tangible cost savings. Globally, Open Trading generated total system-wide cost savings of an estimated $1.1 billion. Emerging Market clients meanwhile saved an average $0.27 per bond transaction.

“2020 was truly the year when electronic bond trading came of age for private banks in Asia,” says Tham, “And we were at the forefront of this. We delivered significantly more efficiencies and cost savings to trading desks by, in part, helping them migrate away from voice-trading. And for relationship managers and their clients we were able to demonstrate that liquidity is indeed the foundation of alpha generation.”

Enter Axess IQ

Tham should know. As a former senior bond trader at UBS, he is a private banker-turned-solution-provider who is one of the principal architects behind Axess IQ, its bespoke order execution workflow for private banks currently being further optimized for and rolled out in Asia.

“I’d known MarketAxess for a long time from a user perspective,” he says, “I always preferred working with them to any other tech provider because I felt like they were really listening to me and my needs. I liked the way they work; they weren’t afraid of tailor-making solutions.  As a trader, I saw many ways of finding liquidity via various tools, solutions and platforms. That gave me a good idea of what works well and what doesn’t in the real life of a private bank’s trading desk. This helped me and my team develop Axess IQ – it’s a tool that I would have liked to work with back in my trading days.”

Integrated with Open Trading, Axess IQ also offers seamless connectivity with a private bank’s OMS and aims to simplify the bond trader’s end-to-end workflow. On a single screen, it offers traders the chance to see and control their entire order flow. This provides access to all of MarketAxess’s liquidity and pre-trade data, including RFQ and its award-winning AI-powered predictive pricing engine, Composite+, which harnesses machine learning to predict corporate and Emerging Market bond prices based on actionable – as opposed to indicative – transaction data. It also helps traders execute large numbers of orders easily and efficiently, even the sometimes relatively small orders with which Asian trading desks have painstakingly to deal.

“Axess IQ’s like a Swiss army knife,” says Tham. “It’s a smart order manager, a data aggregator, an automation engine and a machine tool for providing best execution, including its evidence. All in one. It brings all these elements together seamlessly in a workflow that’s optimised for the private banking execution desk. The biggest benefit of Axess IQ is that it’s a sum of all its features.”

This is a sponsored advertorial from Marketaxess

 

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