MarketAxess reveals record number of buy-side acted as liquidity providers in COVID-19 crisis

The first quarter this year has proved important in advancing all-to-all trading, according to MarketAxess chief executive, Rick McVey.

A record number of asset managers acted as liquidity providers on the MarketAxess Open Trading platform at the height of the COVID-19 crisis, which chief executive Rick McVey described as an important development for all-to-all trading.

MarketAxess revealed during its first quarter 2020 earnings call that investment managers reached a new volume record for providing liquidity on its platform, while dealers reached a new volume record as liquidity takers.

McVey told analysts that the MarketAxess Open Trading system, an all-to-all platform that allows buy- and sell-side firms to connect anonymously through a central network, saw a record 900 firms provide liquidity during the period, with a majority of 700 being asset managers.

“This is where we think we’re making a big difference when markets get to these sorts of stress levels. Our technology connects investors and dealers all around the world and the best price can come from anywhere,” McVey said.

“We did see asset managers taking advantage of opportunities when there was heavy selling in the market, and we saw dealers taking advantage of using the platform to take liquidity when they needed to reduce risk. We think that this as an important quarter in terms of the advancement of all-to-all trading.”

MarketAxess revealed that as price dispersion in credit markets exploded in March, Open Trading delivered significant transaction cost savings to clients, with liquidity takers and providers saving an estimated $201 million and $87 million respectively in the first quarter.  

Open Trading average daily volume surged 53% year-on-year in the first three months of 2020 to a record $3.4 billion. The platform represented 31% of total trading volume for the full quarter, up from 26%.

“The combination of trading efficiency and transaction costs that we can reduce – we saw an incredible number of orders that were completed in March where Open Trading was the only price,” McVey added. “For us all this is going to create a more permanent behavioural change given the experience that clients have had in our platform, in terms of sourcing liquidity at the most difficult time.”

Speaking at a fixed income conference in the US last year, senior buy-side trading heads noted a shift in market structure and provision of liquidity had seen asset managers take on a greater role as price makers, with some making sure that portfolios are set up to be the liquidity provider.

“If you look back at the fourth quarter of 2018, one of the ways we were able to take advantage of the market was really being in that liquidity provider seat,” said Sonali Pier, executive vice president at Pimco, at the time. “Whether that was in bank loans due to the liquidity crunch there, or working with individual issuers to see if they needed to come to market, and we could do a private financing directly due to the size of our balance sheet.”