K&K Global Consulting Ltd. met with Christophe Roupie on 23rd May 2018 to hear about his journey over the past year at MarketAxess. This is his story:
2018 thus far… Open Trading and the growth of all-to-all liquidity is set to continue
The adoption of all-to-all trading has certainly been an evolution to the traditional way buy-side traders execute orders. It does challenge the more established workflow when it comes to price formation on one hand, and the provision of liquidity on the other.
The discussion on alternative pools of liquidity at the Alpha Trader Forum France in Paris on the 15th of May was refreshing and quite revealing. Buy side trading desks are starting to embrace the many benefits of all-to-all trading. With the quality of pre-trade price information that is available on MarketAxess, traders are starting to be increasingly confident in using all-to-all trading protocols, including Market Lists and Private Axes for block trading. I particularly enjoyed the discussion between our existing Open Trading buy-side users and their peers on the positive impacts of having a diversified and alternative source of liquidity. The risk appetite of banks has reduced dramatically over the years as balance sheet constraints and capital requirements continue to impact dealers’ ability to provide liquidity. The alternative route, which is to have a more direct and broader access to institutional participants’ inventory through our all-to-all network, is a transformative evolution. With more than 1300 institutions and thousands of end-users linked on to MarketAxess on a daily basis, this network is an alternative pool of liquidity which never existed before.
Our efforts since 2012 have resulted in an additive solution as clients who were only able to act as price takers are now able to provide liquidity across a wide range of credit products. We also increasingly see dealers initiating anonymous RFQs for other dealers or buy-side traders and institutional participants to respond to. We have reverse engineered the way liquidity was historically provided from a disclosed C2D model to an anonymous C2C, D2C and D2D workflow. MiFID II is also now a driving force behind the shift in paradigm with increased demands on best execution. Now you are in the market and able to source liquidity like it never used to be.
Back to regulation and the increased focus on demonstrating best execution for buy-side traders. Cost saving is clearly very high on the agenda as it directly benefits the end investor. We estimate that Open Trading saved liquidity takers over US$ 90 million in 2017 and US$ 32 million in the first quarter of 2018. Ultimately this is a premium benefit for all of our participants, especially for the beneficial owners of the assets.
The evolution of the buy-side trading desk
Some of our clients are already leveraging our auto-execution technology, in order to make the price discovery process more efficient and therefore scalable. This is very salient in an environment where asset management fees are compressed and competition for passive mandates is fierce. MiFID II has clearly created a push towards further automation of the buy side’s execution workflow and some firms are now articulating their trading strategy between low touch/highly automated executions and high touch/more impactful transactions. Equity markets experienced a similar pattern post MiFID I with the proliferation of lit and dark trading venues alongside the rise of algorithmic trading. Perception is changing, behaviours are changing, technology budgets are reviewed as automation is no longer a “nice to have” but a “must have”.
Traders must also prepare for the next generation of fund managers as investments in digitalisation and technology further disrupt the business models we have been accustomed to. How do you automate execution between an order generated by a computer using AI and machine learning to select a bond and a liquidity provider auto-quoting through algorithms with no human intervention whatsoever? I think it is a fair question to ask now.
A technical solution for fixed income voice trading under the new regulatory regime
MarketAxess offers a technical solution to help firms satisfy their reporting and regulatory requirements. We want to support our users with greater operational efficiency even when the execution has been initiated away from our platform.
The debates around the actual time stamping and the arguments whether the trade is “done” when agreed over the phone or when processed onto a trading venue will live with some of my colleagues for ever I think!
But more importantly we do not charge for this service, and we do not include process trade volumes in our trading statistics from a market share or ADV perspective.
Bond transparency: falling short of expectations and new data opportunities
Our pre-MiFID II analysis cautioned that very few bonds, especially corporate bonds, would be deemed liquid and thus significantly less transparent than what was actually expected. We proactively assisted ESMA in their regulatory development process of MiFID II, supplying data from our Trax database to visualise the possible outcomes. ESMA may re-calibrate the liquidity definitions somewhere down the line but more importantly, we as an industry must collectively help shape the ecosystem of tomorrow in order to avoid such shortcomings.
Our proprietary Axess All platform is the closest you can get to a consolidated trade tape in Europe and at any time represents up to two thirds of the European trading activity of any given day, from highly liquid to less liquid bonds, including Asian credit. Once certain parameters are met our system provides users with pre-trade information to better understand market flows and the latest pricing information on any given bond. By leveraging the Trax database, Axess All provides a market-wide view agnostic of execution sources.
The level of adoption in e-trading technology for fixed-income markets continues to grow from a relatively low base to a more diversified set of users including private banking and central banks. We therefore see a substantial opportunity for growth in transparency, particularly in markets like Asia. When finding liquidity with the other side is challenging in certain markets, further electronification helps improve liquidity by creating new trading connections and ultimately expanding the all to all network.
Innovating in a new market environment
Despite increased regulatory scrutiny, cost and fee pressures and market structure changes, financial markets and the fixed-income world in particular are continuing to innovate. In my experience, being the first or early mover in technology investments and developments is a game changer.
Innovation is at the heart of superior performance, regardless of the industry. Artificial intelligence and machine learning are reshaping our vision of the future
The technology available today is helping deliver efficiencies across all types of trading strategies. More firms are relying on data to improve their efficiency and implement superior execution strategies.
We recently released an algo-driven, fully automated machine learning pricing tool called CP+. The CP+ engine generates nearly 20 million price levels per day, refreshed every 15 to 60 seconds for over 23,000 corporate bonds globally and sits within the trading screen on the MarketAxess platform, giving traders high quality information directly at their fingers tips. Data tools, such as CP+, and the range of trading solutions available to clients significantly improves the efficiency of any trading desk, giving them more confidence in the price formation process.
Setting the Brexit strategy
On an anecdotal note, I moved to the UK two weeks before Theresa May triggered Article 50, bringing my family to London at a time when many continental Europeans were opting to do the exact opposite move. Uncertain and historical times to say the least. But I cannot think of a better place to be in at the moment, and my work as UK Chairman of the CityUK Anglo-Dutch dialogue is an illustration of the many unexpected impacts of Brexit.
Upon joining MarketAxess one of my very first tasks was to help prepare the company for the many challenges triggered by Brexit. My colleagues in London and New York had been working very hard on understanding the most relevant and impactful decisions required to preserve business continuity in a post-Brexit world. We have since made our decision to open a European office in Amsterdam and have applied for a license to operate both our MarketAxess and Trax activities in the Netherlands.
Technology can certainly bring cohesion and efficiency to financial markets at a time of heightened geopolitical risks, including the search for talent and skills to create new centres of expertise.
A personal journey; joining a successful FinTech company driven by our clients, market structure changes and product innovation
Of course I knew MarketAxess as a former buy-side client, but more importantly I witnessed the growth of the platform from its creation in 2000 to its current standing in the industry. I remember seeing the demo whilst at Natixis, back in the days when your best friend was the IT person in charge of the direct phone lines to the dealers! Needless to say, it was an introduction to technology which shaped my vision of the future. When MarketAxess made the Trax acquisition in 2013 it also focused the need for a more data centric approach to trading, including best execution analysis.
I come into work every day feeling privileged to lead the European and Asian teams and support my colleagues globally to make MarketAxess even more successful. I am surrounded by incredibly talented people.
We are at the heart of the bond market evolution - it is very energising to connect to our clients, both buy-side traders or sell-side dealers, and work with them on new products and innovative solutions.
It has been an exhilarating journey, crossing the MiFID II implementation deadline, growing the business across all our core products from US High Grade to US High Yield, Emerging Markets and Eurobonds, and planning for the impact of Brexit as well as preparing upcoming regulatory challenges. Looking back at January 3rd 2018, we had to establish various reporting services such as our ARM and APA products. The build was enormous and the pressure was relentless but it was very satisfying to see how well we managed some of the many challenges we faced, for example the publication of APA data in real time. Our global technology teams did a fantastic job and are continuing to do so as we are only at the beginning of a new and enhanced regulatory regime.
We are a small company of less than 500 people. Some have been with the firm since nearly the beginning. We are innovative, fast paced and agile. Our success relies on our abilities to grow in-house talent and attract external talent. We train the leaders and managers of tomorrow through various leadership programs, including our graduate programs in New York and London which provides us with incredibly talented and driven young individuals who will lead our future growth. MarketAxess was born in New York, it is in a way my American Dream, and I am proud to contribute to its continuing success for many years to come.