Tag Archives: MarketAxess

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Quant-Centric ETF Market-Maker Jane Street Adds Corporate Bond Axe

Jane Street Capital, the quant-centric proprietary trading firm best known for its dominant role in the ETF marketplace–including its role as a liquidity provider for stocks and options as well as exchange-traded funds to buy-side accounts– has a new arrow in its quiver; making markets in corporate bonds.  The firm disclosed that it is lifted its anonymous veil and is now a ‘disclosed dealer’ on electronic bond trading platform MarketAxess (NASDAQ: MKTX).

jane-street-capitalShall we guess whether the 6-pack banks and their first cousins–the industry’s legacy source of liquidity to buy-side managers navigating the corporate bond market landscape are (i) happy to have a new competitor, (ii) happy not to have to make markets and tie up balance sheets with inventory of hard-to-move corporate bonds or (iii) f–king pissed that tech-focused prop trading firms are now invading a secondary market product area that banks have viewed as their exclusive territory since time began?  Jay Berkman, a ‘bond-tech’ pioneer given his co-founding role of BondNet, the corporate bond markets’ first electronic exchange platform when it launched in 1995 (and later acquired by BNY) answered the MarketsMuse editor’s question with: “Is that a rhetorical question?!”

As noted by WSJ reporter, Matt Wirz, investment banks and brokerages are the main go-betweens for money managers looking to buy and sell corporate bonds, about $25 billion of which trade daily in the U.S. Now, Jane Street Capital LLC, has begun offering the same service to investment firms on electronic trading platform MarketAxess and has recruited about 60 clients, people familiar with the matter said.

The move puts Jane Street in direct competition with traditional dealers like Goldman Sachs Group Inc. and JPMorgan Chase & Co. It also shows how bond markets are being transformed by electronic and algorithmic trading, innovations that swept stock and currency markets more than a decade ago.

Jane Street’s headquarters are a five-minute walk from Wall Street, but in some ways the firm is more akin to a Silicon Valley startup than an investment bank. “They have a different approach—there’s not a lot of sales and a lot of technology,” says Mike Nappi, a bond trader for mutual-fund manager Eaton Vance Corp. who has bought and sold bonds through Jane Street. “That’s different from a traditional bank where they have a lot of sales and the technology is more like Microsoft Excel.”

By joining those ranks, Jane Street aims to get recognition from asset managers for the balance sheet it uses to buy and sell with them, ultimately boosting the amount they trade with the firm, said Matt Berger, the firm’s head of fixed income and commodities trading. Jane Street trades about $550 million worth of corporate bonds in the U.S. every day, he said. This amounts to about 2% of the overall market, five times more than the firm traded two years ago.

That expansion would have been impossible without the recent spread of electronic bond trading.

Technology-driven trading firms like Jane Street and Virtu Financial LLC emerged after stock exchanges electronified in the 1990s, connecting  buyers and sellers through computers and reducing trading times to fractions of a second. The firms’ computer scientists built programs to cull market data and identify profitable trades that humans missed. Now, quantitative trading firms dominate the stock market.

Electronic trading has been slower to catch on in debt markets because bonds typically trade over-the-counter rather than on centralized exchanges. That has begun to change over the past five years as banks and money managers turn to electronic trading and data analysis to trim costs and to connect to more trading partners. Electronic trading platforms like MarketAxess have given Jane Street and other quantitative investors venues to apply the technology they used in other markets.

MarketAxess accounted for about 18% of all U.S. investment-grade bond trading last year, up from 12% in 2014, according to data from the company.

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Jane Street, founded by four partners including Michael Jenkins and Robert Granieri, now has about 50 bond salespeople and traders. Recruiting materials tout chess facilities, office gyms, math puzzle contests.

The firm trades less debt overall than most banks, which still employ hundreds of human sales and trading staff. But when it comes to its inventory of corporate bonds, “we are on par with the banks,” Mr. Berger said.

Jane Street hold bonds on its balance sheet for days or weeks to facilitate so-called portfolio trades of bundles of bonds often tied to ETFs. The portfolio deals normally range from $50 million to $750 million but can go as high as $2 billion, a person familiar with its trades said.

Read the full WSJ story here

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TradeWeb Cashes In, Broker-Dealer Investors Cash Out via IPO

Bonds and Billions 3.0…Tradeweb Markets, one of the original electronic bond trading pioneers, which first introduced its dealer consortium platform in 1996, proved that patience is a virtue when it comes to monetizing enterprise value. The company raised $1.1billion via its Nasdaq-listed IPO yesterday (NASDAQ:NW). Illustrating investor attraction to owning a piece of the fintech company focused on fixed income trading, the company increased the number of shares they first planned to offer from 27.3 million to 40 million shares and upped the ante for the IPO price from a $24-$26 range to slightly north of $27. The IPO puts a $6bil valuation on the company–whose original investors include a consortium of broker-dealers.

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Tradeweb CEO Lee Olesky photo courtesy of BRENDAN MCDERMID/REUTERS

Per snippet from Bloomberg News, Tradeweb intends to use proceeds to buy shares held by eight of the 11 large banks that own stakes in the company, including Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley and UBS Group AG, according to its registration statement filed with the Securities and Exchange Commission.

Tradeweb’s IPO is also the biggest for a financial services company in the U.S. since online lender GreenSky Inc. raised $874 million in May.

The offering follows benefits administrator Alight Inc.’s decision in March to postpone plans to raise up to $800 million in an IPO. Alight and Tradeweb are both owned by private equity firm Blackstone Group LP, which led the $17 billion acquisition last year of Tradeweb parent Refinitiv from Thomson Reuters Corp. Tradeweb, founded in 1996, builds and runs electronics markets for trading government bonds, derivatives, exchange-traded funds and other financial instruments over the counter. It handled an average of $549 billion in daily trades in 2018, according to its IPO prospectus.

Tradeweb posted net income of $160 million on $684 million in revenue last year.

As noted by Liz Hoffman of the WSJ, online venues are gaining ground in bond trading, digitizing orders that were once placed over the phone. At MarketAxess Holdings Inc., Tradeweb’s closest listed peer, trading volumes have more than doubled since 2014.

At $27, Tradeweb’s stock will list at about 30 times the company’s annual earnings. MarketAxess trades at nearly 50 times its earnings, while exchanges such as NYSE ownerIntercontinental Exchange Inc. fetch about 25 times their earnings.

JPMorgan Chase & Co.Citigroup Inc., Goldman Sachs and Morgan Stanley led the offering. Tradeweb will start trading Thursday under the symbol TW on the Nasdaq Global Select Market, according to the statement

Affiliates of Refinitiv will continue to hold about 54 percent of Tradeweb’s outstanding common stock, according to filings.

If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor via cmo@marketsmuse.com

Electronic Trading of Corporate Bonds: Not All Rosy as TradeWeb Loses Leader Within Months of Joining

TradeWeb’s Raazi is out after short stint pitching the merits of electronifying the corporate bond market.

MarketsMuse.com has made more than a few mentions about the recent decade’s corporate bond-centric electronic trading platform initiatives and those being spearheaded by the latest generation of altruistic sell-siders, buysiders, and the assortment of those in-between. Today’s MarketsMuse post within fixed income and trading tech sections profiling the surprise departure of e-trading giant TradeWeb’s recently appointed leader of their e-corporate bond strategy is a story that illustrates that even the seemingly smartest folks in the room are encountering the same obstacles that have derailed all but a very short list of ‘innovators’ in the electronic corporate bond trading space. The rapid rise and more rapid resignation of TradeWeb MD Mehra “Cactus” Raazi, who was appointed to the inglorious bastard role of Head of Credit just months ago, leads the rest of us [who are old enough] to hum one of George Gershwin’s great tunes made famous by Fred Astaire and Ginger Rogers .. “Lets Call The Whole Thing Off..” Continue reading

Electronifying Corporate Bond Trading Chapter 12: Electronifie

MarketsMuse.com merges Fixed Income and FinTech with continuing coverage of the corporate bond market’s effort to evolutionize via electronification with a focus on yet the latest innovator initiative courtesy of Goldman Sachs alumni Amar Kuchinad and his start-up“Electronofie.” Our hats are off in salute to the catchy company name and extracts below are courtesy of recent profile in Fortune Magazine. Roger Daltry adds: “Dealers, Can You Hear Me?” Or, As Victor Hugo once wrote, “nothing is stronger than an idea whose time has come.”

Fortune Mag’s Shawn Tulley “takes it away” starting here:

It sure looks like the Golden Age for bonds. The $7.7 trillion U.S. corporate fixed income market is the largest source of liquidity on the planet for companies, and individual investors, pension funds, and endowments are flocking to bonds as never before.

So it’s hard to believe that anything this important could be so trapped in the past. At America’s biggest, most-tech savvy asset managers, traders speed-dial their favorite Wall Street salesman to place their biggest orders over their trademark headphones, just as in the Liar’s Poker era. The electronic platforms that transformed the equity markets decades ago mainly never arrived for the bond market. Relative to stocks, big-ticket fixed-income trading is stuck in the Stone Age.

Naturally, the beneficiaries are the investment banks who charge fat markups and, frequently, their hedge fund clients, who feast off of the constant leaks on who’s buying and selling big chunks of bonds, information that Wall Street firms use to cement their most lucrative relationships. Continue reading

Chapter 5: Electronic Corporate Bond Trading—Do I See a Chapter 6?

Same story, different day..’electronifying the corporate bond market’. . Folks have been looking for this Holy Grail for the past 20 years..That’s right..other than Bloomberg’s 1990’s system, a company named BondNet was the first to launch a web-based platform. That was an independent IDB platform created by some very innovative folks who got put into the penalty box when it was announced they would allow buyside managers to access it.Then Came Market Axess with their corporate bond offering (which was sponsored by a consortium of BDs and provided 2 different levels…one for the wholesale market (BDs) and the other for buyside…no need to guess why there were 2 levels of access…because there were 2 levels of prices displayed…Duh..that’s how the corporate bond market works, silly!

At the same time that BondNet and MarketAxess were getting their feet wet, TradeWeb was already in 2nd gear with their US Treasury bond offering…Great technology..great pioneers……Well, 20 yrs flash forward and TradeWeb..which had judiciously avoided going down a path that was full of torn limbs, is trying to steal corporate bond thunder from MarketAxess. TradeWeb’s focus is on the meat i.e. trade sizes of $1mil bonds and greater—while MarketAxess is somewhat stuck in the odd-lot land…not because they haven’t tried to get larger block orders, but because the culture of the corporate bond landscape is not friendly to trading blocks on a live screen… 

That said, the WSJ thought it only fair to give TradeWeb some publicity via a very complimentary profile their current capo di tutti…Here is the opening of that story:

Can one man drag corporate-bond trading into a new age, where others have failed?

Meet Mehra “Cactus” Raazi, a former salesman from Goldman Sachs Group Inc., who has been working to do just that at fixed-income technology operator Tradeweb Markets LLC.

The New York firm is counting on Mr. Raazi as the frontman for its new electronic bond-trading system, an effort to bring the corporate-bond world into the 21st century. It has charged him with drumming up interest among asset managers and hedge funds for a system it says will enable easier and cheaper trading in U.S. corporate debt.

While trading technology can be humdrum, Mr. Raazi is anything but. Tall and athletic, with chiseled features, a neat crop of salt-and-pepper hair and a taste for custom motorcycles, he sometimes sports an ascot with skulls on it or a leather wristband featuring silver skulls. He practices the combat sport muay thai and has a stake in a lower Manhattan late-night burlesque club, The Box, said people familiar with his activities.

“He comes off very polished,” said Michael Adams, managing director at Sandler O’Neill + Partners LP, who saw Tradeweb’s new platform in the fall.

Whether the new platform, and Mr. Raazi’s efforts to sell it, will succeed still is uncertain, according to traders and analysts. Tradeweb has been silent on any progress it has made so far.

That is despite investors calling for more efficiencies amid shrinking stockpiles of bonds at securities dealers. For years, electronic trading has remained a fraction of the $7.7 trillion U.S. corporate-bond market. Instead, much of the trading is done over the phone.

Only about 15% of corporate-bond trading in the U.S. between investors and dealers is conducted electronically today, up from about 8% in 2010, according to bond-platform owner MarketAxess Holdings Inc., which has the vast majority of that volume.

Appetite is rampant among startups, exchanges and others to find the magic formula that can boost that share of electronic trading, because of the vast sums to be made from becoming the dominant player.

As many as 18 new companies are in various stages of launching competing platforms this year in the U.S., according to researcher Greenwich Associates.

“We’re not coming at this thing with a crystal ball,” said Tradeweb’s Chief Executive Lee Olesky in a briefing with reporters in the fall. Mr. Raazi declined to comment for this article through a spokesman.

Tradeweb’s effort has powerful backers in the 11 banks that co-own the company, including four of the big U.S. bond dealers: Bank of America Merrill Lynch, Citigroup Inc., Goldman and J.P. Morgan Chase & Co.

But it faces significant headwinds, as shown by the failure of numerous recent bond-platform launches, including at least two previous attempts by Tradeweb in the U.S. Past efforts have foundered for a variety of reasons, including that old trading habits are slow to change.

Advancing the workings of corporate-bond trading is the latest challenge facing issuers and investors. A doubling of issuance volumes since the financial crisis has vastly expanded U.S. corporate-debt securities outstanding to $1.46 trillion at the end of 2014, from $707.2 billion at the end of 2008, according to the Securities Industry and Financial Markets Association. Yet liquidity, reflecting the capacity to buy or sell securities quickly at a reasonable price, has retreated, traders say.

Into this breach steps Mr. Raazi, who is 44 years old and was educated in California. In 2007, Goldman praised him for swiftly closing out $1.2 billion of bets against souring mortgage securities. In 2010, a Senate subcommittee probing banks’ role in the U.S. housing crisis released a March 2007 email in which a Goldman executive lauded Mr. Raazi’s timely trading. “Cactus Delivers” was the subject line.

For the entire article from WSJ, click here

Corporate Bond ETFs: Trading Underlying Issues Is Not So Easy For Many Pros

Greenwich Associates study reveals difficulty in executing corporate bond trades; Transparency and Liquidity are Lacking

MarketsMuse update courtesy of extract from Jan 23 Wall Street Letter, followed by our own comments (thanks to our Exec Editor’s providing more than average knowledge of corporate bond trading and the assortment of electronic exchange initiatives intended to increase transparency and liquidity in the corporate bond marketplace, one that is notorious for being a less-than-transparent over-the-counter market place)

wall-street-letter-logoBuy-side firms are experiencing difficulties executing corporate bond trades of more than $15m, a study by Greenwich Associates has revealed.

According to the findings, 80% of the institutional investors report troubles when executing larger trades, which reflect a decline in market liquidity caused in large part by the pullback of fixed-income dealers in the wake of new and more stringent capital reserve requirements.

With dealer inventories shrinking, investors’ search for new liquidity providers is proving a boon to the fast-developing ranks of electronic trading platforms.

All-to-all trading, previously unheard of in corporate bond markets, accounted for an estimated 6% of electronically executed US trades in 2014 as a sign that market dynamics are evolving, the report said.

The report entitled US Corporate Bond Trading: A Multitude of Platforms Give Investors Options, identified 18 emerging electronic platforms competing for the corporate bond trading in the US. Continue reading

Junk ETF Bond Volumes Signal Electronic Demand

 

by Lisa Abramowicz

Trading of exchange-traded funds that focus on junk bonds is soaring while volume in the underlying securities slumps as dwindling dealer holdings prompt investors to seek electronic platforms.

Volumes in the two biggest ETFs in June have climbed 22 percent above the six-month average while overall trading for the debt has sunk 9 percent, according to data compiled by Bloomberg. A record $1.67 billion of shares was traded May 31 in the funds from BlackRock Inc. (HYG) and State Street Corp. (JNK), equivalent to 35 percent of the day’s total volume for U.S. junk debt.

Hedge funds and individual investors recently may be able to articulate a trade more efficiently” through ETFs rather than the actual bonds, said Jason Rosiak, head of portfolio management at Pacific Asset Management, an affiliate of Pacific Life Insurance Co. in Newport Beach, California. “That could be considered an indictment on the bid-offer spread increasing due to dealers not taking a significant amount of risk.”

As trading becomes more difficult in the bonds, people will say trading in ETFs is more efficient,” said Chris Hempstead, director of ETF execution at WallachBeth Capital LLC in New York. “By trading the ETF, you’re transferring the onus for trading the bonds onto someone else.” Continue reading