Asset managers have already begun the expected shift to making prices in corporate bonds, MarketAxess CEO Rick McVey has said, driven by greater all-to-all market functionality that he believes will increase significantly.
Speaking on Thursday, McVey said the firm has provided the ability to post prices in an all-to-all market for corporate bonds on its Open Trading platform, which gives participants access to buy-side interest for corporate bonds.
“We're starting to see the buy-side change its trading strategies to make use of this all-to-all Open Trading architecture for corporate bonds by making prices and this will be a key factor in easing the liquidity issues around fixed income products as dealers face increasing regulatory pressures to reduce their inventories,” McVey said.
The Open Trading system lets participants – including the buy-side – anonymously post orders to firms connected to MarketAxess through a series of trading protocols. Expanding this type of order posting functionality, McVey said, would give asset managers the ability to successfully make prices in fixed income.
“By enhancing the sophistication of the technology around making orders, we think asset mangers will find it easier to make prices and increase the amount of bonds executed electronically compared to traditionally voice-based trading,” he said.
In 2013, between 1 and 2% of all volume executed on the MarketAxess platform was executed via Open Trading and McVey expects this figure to rise significantly – possibly to 30% in the coming years. But institutional investors’ ability to make prices for fixed income would not render them market makers, he said.
MarketAxess has developed the Open Trading platform with consultation with global asset manager BlackRock, which has resulted in buy-side firms using BlackRock’s multi-asset class Aladdin trading platform having access to prices posted through Open Trading. This means the 58 asset managers linked to Aladdin will further propel the ability of the buy-side to make prices in fixed income products.