Erik Tham

The move is set to enhance the liquidity and workflow options available to Axess IQ users.

Erik Tham, head of product management, global private banking at MarketAxess, said: “This collaboration between UBS and MarketAxess makes Axess IQ an even more powerful one-stop-shop. The seamless integration with UBS now allows users of Axess IQ to place their limit orders with a single click from their Axess IQ order manager straight to UBS Bond Port’s liquidity pool.

“All orders will continue to be monitored in Axess IQ, giving the trader maximum control with less clicks – further boosting execution workflow efficiency.”

Axess IQ’s limit monitoring, data driven order and execution management, and RFQ trading features are set to be particularly impactful when it comes to increasing the efficiency of execution desks which use UBS Bond Port.

Specifically, execution traders can remain using Axess IQ as their central order manager while also accessing UBS Bond Port as well as other various trading protocols and liquidity pools, without having to navigate away from MarketAxess.  

“Enabling Bond Port and MarketAxess’ mutual clients to route orders directly to Bond Port via Axess IQ is another great illustration of UBS’s collaboration with market participants to allow clients to participate seamlessly with our unique liquidity leveraging their existing connections,” added Mark Eardley, global product manager at UBS Bond Port.

“By utilising our proprietary API, MarketAxess will be the first to benefit from future Bond Port functionality enhancements.”

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Traders using ION’s LatentZero OMS can now access UBS Bond Port’s anonymous global credit liquidity pool, which includes more than 2,500 clients with firm pricing in over 25,000 instruments trading in 19 currencies.

The connection will allow LatentZero clients to see the UBS Bond Port live order book, add orders and trade resting liquidity within their workflow.

“Access to the UBS Bond Port trading platform will provide our buy-side clients with even greater visibility and flexibility to make informed asset management choices,” said Hishaam Caramanli, chief product officer at ION Group.

“This is the latest development demonstrating ION Markets’ mission to use cutting-edge technology to fuel simplicity, automation and reliability for clients, underpinning hundreds of thousands of transactions every day.”

The expansion of ION’s OMS follows the trading technology provider’s recent acquisition of Dash Financial Technologies from private equity firm Flexpoint Ford. ION said the acquisition will help it navigate the ongoing pandemic and manage increased levels of institutional and retail market engagement.

Dash will be incorporated with ION’s markets division, which offers trading automation and analytics across the trading lifecycle.

“Connectivity to OMS providers is at the heart of Bond Port’s client strategy,” added Simon Linwood, EMEA head of UBS Bond Port. “This expanded partnership with UBS Bond Port opens doors for ION LatentZero buy-side clients and provides more liquidity opportunities to the asset management community.” –

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The study found that traders were forced to revert back to voice trading during the period as the market became too volatile and illiquid for dealers and liquidity providers to risk offering prices across electronic platforms. Some banks even shut down their algo trading completely at the time, while others opted to continue auto-quoting prices. 

Prices found on platforms were also unlikely to be executable, buy-side respondents told ICMA, and in some cases electronic request for quotes (RFQs) did not return quotes. As the volatility tightened its grip on markets during the crisis, bid offer spreads widened dramatically and banks providing principal liquidity began to retreat.

While the pandemic and lockdown sparked the market volatility which would cause electronic trading in bond markets to stumble, one head of trading for an asset manager based in Europe, who spoke to The TRADE on condition of anonymity, explained that the liquidity challenges are in fact inherent in fixed income trading.

“That is the nature of the market,” the buy-side head of trading says. “Fixed income markets in Europe are dominated by market makers and large banks, and essentially the liquidity is in their hands. The market participants pricing the business have to price it from their books, it’s kind of like trading with a risk desk.

“When we trade electronically we have many indicators but as markets get turbulent, bid offers widen significantly on the screens. It’s our role to then pick up the phone, not to give up on the electronic platform, but to check the pricing and see if we can get improvements on that price. That’s the nature of the trading business – all of us need to think more about picking up the phone and improving prices.”

ICMA’s study found that while many banks were able to continue providing liquidity and making markets, overall dealer capacity shrunk at the height of the volatility when it was most needed. Stricter capital rules and smaller balance sheets would have impacted dealer capacity, although ICMA also noted that internal bank policies aimed at reducing market making activities, and less experienced desks experiencing the surge in volatility could have played a part in the trend.

Speaking to The TRADE about the ICMA study, Mark Goodman, head of platforms at UBS and president of UBS MTF, says that it was reliance on a single method of generating liquidity in the market, mainly principal, that broke down at the height of the volatility.

“It was very difficult to operate in that environment, and the balance sheet restraints and risk limitations on banks means that if you were fully reliant on that source of liquidity, then it’s true you were probably not seeing firm prices on the electronic platforms,” Goodman says. “Instead, you needed to pick up the phone and speak with multiple dealers to get your trade done. It’s not that the technology didn’t work, we would argue that it’s actually you need more diversity in the market, rather than a simple client-to-dealer model.”

Goodman added that UBS saw 250 more firms dealing on the Bond Port trading platform since February, and buy-side participation soared 152% as traders sought to navigate the challenging liquidity landscape. In March and April, Bond Port was also top three in terms of volume executed in US dollar corporates.

“What we saw was clients looking for new ways to get their trades done, and that was clear in the numbers we saw on Bond Port. It wasn’t the case the buy-side was not able to find liquidity because algorithms and technology stopped working, the buy-side is not able to find liquidity period. That’s why traders are looking more to channels like Bond Port to get their trades done.

“Similar platforms and our own show what is important during these stress periods. It is not whether brokers have invested in algos, or whether algos work or not, it’s that brokers are, from a historical standpoint, relatively restricted on the balance sheet.”

ICMA’s report found that e-trading volumes reduced dramatically during the period compared to voice, but many bond trading venues reported record volumes at certain points during the crisis. At Liquidnet, average trading volume on its fixed income platform jumped by around 130% in March to April compared to January to February. During the same period, buy-side daily liquidity increased roughly 60%, and the number of daily buy-side blocks grew 25% to more than 650. 

“During the higher market volatility conditions of March and April, we saw a spike in volume, liquidity, and number of blocks at Liquidnet,” says Constantinos Antoniades, global head of fixed income at Liquidnet. “As market conditions deteriorated and bid/offer spreads widened, finding natural liquidity from buy-side counterparties, anonymously, and inside the bid/offer spread became advantageous and resulted in large transaction cost savings and in many cases access to block liquidity not accessible elsewhere. Our customers were able to leverage our deep liquidity and network for their liquidity needs, at a time where they need such liquidity the most.” 

Senior buy-siders agree that venues such as Liquidnet and MarketAxess proved significant in plugging the liquidity gap left by the banks. However, the buy-side European trading head adds that while the gap was noticeable, some investment banks held strong throughout the crisis and had strong interaction with the buy-side in terms of liquidity provision. 

“MarketAxess and Liquidnet offer an alternative method of providing liquidity,” the trader says. “It was interesting to see we were able to trade RFQ with the broker of MarketAxess on the platform, MarketAxess Capital Ltd., because they represent anonymous liquidity from different buy-side traders.

“We actually traded more that way during the period. The anonymous trading enables all-to-all buy-side trading, which plugged the gap left by some of the large investment banks that were not quoting as competitively as they used to. We’ve seen some banks with less appetite for risk and quoting business, but others kept strong.”

Rick McVey, CEO of MarketAxess, told analysts on the firm’s first quarter 2020 earnings call that the 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. Open Trading average daily volume surged 53% year-on-year in the first three months of 2020 to a record $3.4 billion.

“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.”

ICMA’s report also outlined the protocols that proved more popular with traders as it became more difficult to find three or more quotes, which is often required under internal best execution policies, including the all-to-all RFQ functionality, trading in dark pools and portfolio, or program, trading.

A separate report from Greenwich Associates stated that anecdotally, some investors have found portfolio trading a useful way to adjust their portfolios during the crisis, because they can mix bonds that are easier to trade with ones that are more difficult to execute.

Speaking to The TRADE in March, fixed income platform Tradeweb also revealed it had seen a steady increase in the number of clients adopting portfolio trading globally to increase certainty of execution on the whole basket. The number of daily line items executed via portfolio trading at Tradeweb surge more than 100% in March compared to the first two months of the year.

However, the research from Greenwich Associates suggests that despite advances in technology, portfolio trading remains a largely manual process, and a large portfolio trade could increase risks around mandatory buy-ins under the Central Securities Depository Regulation (CSDR) should a single trade fail. More than half of European buy-side traders respondents told Greenwich that the CSDR rules would harm liquidity in fixed income markets.

Multiple buy-side trade associations and industry groups have warned regulators of the potentially detrimental impact of the rules, particularly the mandatory buy-in regime for failed trades. Recently the UK confirmed it would not adopt CSDR, including the buy-in regime, but UK-based firms will still have to adhere to the buy-in regime for all European transactions that are settled with European central securities depositories.

ICMA has been outspoken about concerns with the buy-in regime under CSDR, urging regulators that the move will have a detrimental impact on bond liquidity. Its report also noted a spike in settlement fails at the peak of the volatility.

“When engaging with large portfolio trades in volatile markets, you must pick up the phone every time and check the pricing with the broker,” the buy-side trading head says. “It’s not sufficient to do that on a platform – you need to have a conversation and from that we may remove some lines that the broker has flagged as potentially failing. If I believe the price is higher than the historical bid offer I have in my transaction cost analysis (TCA), I might challenge the broker.

“That’s particularly interesting because when you do that, you mitigate the risk of settlement failure. I think portfolio trading can help the fixed income industry tackle the settlement issue. From my perspective, it’s a strong incentive to flag the line that could cause potential problems. There are large investment banks that decided in their pre-trade module to add columns that indicate the probability of settlement failure, whether that probability is high or low. That is really useful. It helps us fine-tune, change or amend the list that will finally be traded.”

Summarising ICMA’s report, Martin Scheck, ICMA chief executive, said the crisis has provided a clear reminder that despite increasing electronification of trading over the last few years, the role of market-makers in creating liquidity remains at the core of the secondary markets. Reducing the ability of market-makers to provide this will inevitably impact market liquidity and efficiency, especially in times of market stress.

The post What happened to e-trading in fixed income? appeared first on The TRADE.

President of UBS MTF and head of platforms, Mark Goodman, told The TRADE that the investment bank deployed the technology towards the end of the volatility driven by the coronavirus pandemic to ensure that the right clients are seeing prices in bonds at the right time.

“We’ve been deploying more machine learning technology to the data that we have,” he said. “If we have an axe on the platform, we wanted to work out which client has the strongest interest and who we should contact. We deployed [machine learning] at the end of the crisis on Bond Port and we’ve been road testing on the platform.”

The technology was applied to axes and prices within UBS Bond Port, which acts as a liquidity aggregation platform with connections with all major fixed income venues, and developed in-house via the UBS strategic development lab. Goodman added his team work very closely with the lab to explore how cutting-edge technologies can solve challenges in trading processes.

“If you look at the platform, we have prices on around 30,000 items on any given day, and 2.500 clients. The ability to apply that technology and technique to find who is most appropriate for each axe, a list of top five clients that should know about this, is an incredible way to leverage the platform and get the right liquidity to the right people. We’ve been using this in our principal business for a while, but we think that this will help us further, because we can target axes to individual clients.”

Goodman was promoted to president of UBS MTF in January following the departure of former president Richard Semark. He re-joined UBS in 2015 as global head of electronic execution for FX, rates and credit, after five years with Societe Generale leading quantitative electronic services for Europe.

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Buy-side, sell-side and agency broker users of AxeTrader EMS will gain access to $30 billion of daily global liquidity in credit, rates and emerging market bonds.

Clients will be able to distribute prices to the UBS Bond Port network on an anonymous basis, with liquidity in more than 40,000 ISINs in 19 currencies.

UBS Bond Port is the Swiss investment bank’s electronic execution credit smart order router. 

“Building on our 35% year-on-year volume growth, we are delighted to welcome AxeTrader clients to the expanding UBS Bond Port platform,” said Nico Masso, global co-head of credit execution at UBS Bond Port. “Our object is to ensure our clients can trade credit across multiple channels and have the optimum connectivity options to access the deepest liquidity.”

The connection to the AxeTrader EMS is also the latest step in UBS Bond Port’s order and execution management system strategy, according to the bank’s product manager, Mark Eardley. He added that the partnership increases the firm’s options in expanding its client base and adds significantly flow and depth of liquidity for those using the platform.

In September, AxeTrading was appointed technology partner for the bond market in Indonesia via a deal with the Indonesia Stock Exchange. AxeTrading will provide the technology to be used on a newly-developed platform, after the exchange received approval to operate as an alternative trading market operator.

“By connecting AxeTrader to UBS Bond Port our clients will benefit from the broadest access to an established and proven truly global fixed income order book that goes far beyond other matching tools. This offers them aggregated firm liquidity backed by the market strength of UBS as the trading counterparty,” Mark Watters, CCO and co-founder of AxeTrading, concluded.

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