market axe, which operates an electronic fixed income trading platform and provides market data and post-trade services, saw record automation usage in the first quarter of this year as clients seek to increase efficiencies across products and regions.
Gareth Coltman, global head of trading automation at MarketAxess, told Markets Media that despite the surge in volatility in the first quarter of this year, there is a growing recognition that electronic trading is an excellent way to stay connected during times of market stress, and it is It is also reflected in the growth of MarketAxess tools and protocols.
“It’s not about clients going back to the old ways when volatility kicks in,” he said.
Rick McVey, Market Axess
Rick McVey, Chairman and Chief Executive of MarketAxess, said during the presentation of the first quarter results that trade automation has reached a record in terms of trading volume, number of trades and active customers.
Coltman said, “These tools are being institutionalized into dealer workflows, and customers are increasingly relying on these tools to run the significantly higher volumes of activity.”
He highlighted the increase in Auto-X usage despite increased volatility, which contrasted with the decline in usage during the pandemic.
Auto-X enables buy-side customers to automate the submission and execution of Requests for Quotation (RFQ). As spreads widen, Auto-X automatically adjusts to ensure trades take place in market context and questionable trades are sent back to the human trader for evaluation.
Source: MarketAxess
“Customers have been willing to push the boundaries of automation,” said Coltman. “They originally focused on investment grade products in the US and Europe, but we’re starting to see traction in the other products and across Asia.”
MarketAxess also had a record quarter for auto-responder usage with nearly 8,000 auto-generated responses, resulting in significant cost savings for customers, according to Coltman. Open Trading Auto-Responder enables buy-side customers to automatically respond to incoming quote requests in Open Trading, the company’s all-to-all trading model.
“I spoke to a client who responded to a wide range of high yield names,” he added. “They can set this up in advance so they don’t miss an opportunity to take advantage of that cost savings when it becomes available.”
MarketAxess is also experimenting with workflows around auto-responders, such as the ability to launch RFQs at the end of the day.
In addition, MarketAxess is actively building out technology for Adaptive Auto-X this year to create more sophisticated workflows for clients and allow them to leverage the different liquidity pools of MarketAxess. Adaptive Auto-X combines multiple trading protocols available through Open Trading.
For example, a client might want to look for passive liquidity from multiple sources at the same time.
Gareth Coltman, MarketAxess
“A client would be able to set parameters for their workflow and interact with liquidity wherever it is available across a range of protocols,” Coltman said. “Customers see this as a natural next step in the market structure.”
Additionally, due to the growth of exchange-traded bond funds, there is a lot of interest in trading new protocols for bonds that are included in an index.
In March 2022, MarketAxess launched the MKTX US Investment Grade 400 Corporate Bond Index, which uses its proprietary Relative Liquidity Score and Composite+ pricing engine to construct an index that it believes has the liquidity, transparency and high availability of the constituents bonds improved.
MarketAxess is also thinking about innovative ways for clients to trade large blocks without significant market impact, especially in difficult market conditions.
Results
MarketAxess reported revenue of $186.1 million for the first three months of this year, the second-highest of all quarterly sales.
We reported revenue of $186.1 million, operating income of $88 million and diluted earnings per share of $1.71 for the first quarter of 2022
— MarketAxess (@MarketAxess) April 20, 2022
Average daily trading volume rose 22% year-on-year to a record $37.5 billion, mainly driven by all-time high average daily volume in US Treasuries of $25.1 billion, in emerging markets of $3.1 billion $288 million in municipal bonds.
Average daily total lending volume was $12 billion in the first quarter, down 3% year over year, but still the second-best quarter for total lending volume.
McVey said in a statement, “This strong performance reflects the excellent progress we have made in executing our growth strategy, expanding our geographic diversification and laying a broader foundation for growth. We have delivered these results as market conditions continue to improve, with wider spreads and increased spread volatility through Open Trading, our differentiated liquidity pool, resulting in significant cost savings for our clients.”
According to MarketAxess, Open Trading achieved an estimated $201 million in transaction cost savings for clients in the first quarter of this year, beating levels from a year ago.
Source: MarketAxess
“The use of Open Trading is pervasive among our client base and is firmly established as a standard part of the workflow,” said Coltman.
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