MarketAxess on delivering intuitive and practical innovations

MarketAxess is in the business of creating pools of liquidity. As one of the largest fixed-income electronic trading platforms (by its own reckoning it accounts for 20% of total corporate bond trading activity and 3.8% of the hotly contested US Treasuries markets – up from 2.3% last year), this is a role that continues to evolve. And it has arguably become more important given the recent periods of significant market volatility. 

The first notable one of these came at the start of the Covid-19 pandemic, and another as economies worldwide struggled with supply chain shocks following the easing of lockdown measures. These squeezes were significantly intensified by Russia’s invasion of Ukraine and the disruption that has followed.

“There’s no denying there is quite a lot of volatility and dislocation in the market,” says Raj Paranandi, chief operating officer for Europe, the Middle East and Africa and Asia-Pacific at MarketAxess. “During these periods, it’s even more critical that investors are able to access diversified liquidity pools and have greater flexibility in how they can trade. I think the world of monolithic liquidity provision through single protocols is behind us. Investors now demand flexibility and liquidity depth.”

MarketAxess’s Open Trading, its all-to-all trading platform, is probably the mode of trading for which it is best known. Mr Paranandi describes it as the company’s “calling card”. Levels of Open Trading as a share of total trading activity via MarketAxess have continued to increase, and it now accounts for 36% of all corporate bond trading. Open Trading sits at the heart of the MarketAxess trading ecosystem, alongside traditional request for quote (RFQ), and the firm has launched a number of other successful protocols for accessing its global liquidity pool recently, such as portfolio trading.  

Cometh the hour

Mr Paranandi believes that recent market disruption has created a greater willingness to innovate and adopt new approaches. “In times of disruption, people see the opportunity, and are often more willing, to innovate,” he says.

He cites examples such as MarketAxess’s Dealer RFQ protocol, which provides bond dealers with access to the Open Trading all-to-all network of both dealer and non-dealer counterparties. Some 43% of trades done via Dealer RFQ are now with non-dealer counterparties. Mr Paranandi says the company has seen a significant increase in Dealer RFQ usage. “In a world where dealers are often trying to recycle liquidity as quickly as they can, given the need to run capital-light businesses, the additional liquidity it provides them is something they really appreciate,” he says.

Another area of innovation is its Live Markets platform introduced in 2019, which provides an orderbook and firm pricing for the most active US investment-grade bonds. Market-makers such as Goldman Sachs and Barclays have joined the platform.

Levels of adoption for trading automation have also continued to increase. Mr Paranandi applies a broad definition to automation in terms of the types of solutions that MarketAxess can offer its clients. “At one end of the spectrum, automation can just be about small enhancements that increase the efficiency of your trading actitivies, and at the other end it can be about more significant adoption of algorithmic trading,” he says.

He believes the adoption of algorithmic trading will be an “evolutionary” process within the fixed-income markets. “In other areas, such as foreign exchange, we saw a rapid adoption and evolution,” he says. “For the fixed-income markets, which are of course very different, no one is completely certain of what the speed of that will be. But we are clear there is going to be a significant role for automation.”

Client-led innovation

Mr Paranandi says clients will drive the pace. “Each will go through their own maturity curve and will have different appetites for how they can use the technology,” he says. “What we’re ultimately focused on with this technology is how it can support clients to achieve the best possible outcome, in the most efficient manner.”

However, he is convinced that there will be an inflection point where algorithmic technologies become a “core part of the toolkit”.

He compares the process of digitalisation that is taking place in bond trading with how people interact with technology in their personal lives. “The evolution of personal technology, particularly handheld technology, has changed the way we think about corporate technology. In particular, the attention span of the average user is far shorter than it was in the past,” he says. As a result, Mr Paranandi has put intuitive design at the centre of his teams’ approach to innovation. 

A fan of Jony Ive, celebrated former chief design officer for Apple, Mr Paranandi believes this is one of the key ways that MarketAxess will be able to differentiate itself, and win, against its competitors. “There is a real battle for desktop real estate. Traders are absolutely inundated with visual stimuli on their screens,” he says. “I firmly believe the venues that win will be those that present data and make the pathway through their software as intuitive as it possibly can be.”

For him, this lies at the heart of what digitalisation is about. In the context of MarketAxess, this means cracking the problem of presenting large amounts of data to users in a clear and salient way. “This is an industry that generates billions of data points,” he says, pointing to significant advances in technology in recent years such as cloud computing (which allows at will scaling up of computational processing power, when needed), data lake storage solutions (centralised storage of data in differing formats) and machine learning, all of which have enabled the translation of masses of data points into practical insights and execution tools. A clear example of this is MarketAxess’s Composite+ tool, which is its artificial intelligence-powered pricing engine. It analyses public and proprietary data to generate accurate pre-trade prices for hundreds of thousands of corporate bonds, an area in which pre-trade price discovery has historically been very challenging.

However, despite being a highly technology-enabled business, whose raison d’etre is to electronify bond trading, MarketAxess’s success lies in having regular conversations with clients, Mr Paranandi believes, particularly as the company continues to innovate. “In the 18 months that I’ve been at MarketAxess, the thing that has probably impressed me the most is the intensity with which we talk to clients,” he says. “Our entire methodology around product development and design is predicated on getting feedback from clients as often as we possibly can.”

Post-trade opportunities

One area where MarketAxess has prioritised innovation is the often overlooked area of post-trade. “The post-trade business is a terrific business from an operating margin perspective,” he says. “It’s very strong and it gives us a tremendous synergy with our trading businesses.” For example, the post-trade business provides it with masses of data that can be fed back into the machine learning engines and trading tools that clients need. It is also useful in supporting the business’ expansion efforts, as a means of building authority and trust with regulators in new markets. Mr Paranandi suggests its regulated post-trade business could help MarketAxess to support increased market transparency in emerging markets, which is often a key aim of local regulators.

“We have a terrific and ambitious emerging markets franchise,” says Mr Paranandi. “As we move into new local markets, having a regulated post-trade business, which delivers trade and transaction reporting and increased market transparency, has continued to help us to build that trusted relationship with regulators.”

This is an area where MarketAxess has been able to significantly boost its capabilities, following its acquisition of Deutsche Börse’s regulatory reporting hub business in late 2020, with the full integration of that business being completed in the first quarter of 2022. “I’m very keen to emphasise the synergy between our post-trade business and our point-of-trade business” says Mr Paranandi. “I think that full offering is a quite a differentiator and is a core part of our proposition, rather than an add-on.”

Increased market transparency is a key motivator for the organisation. In July, MarketAxess announced that, along with Tradeweb and Bloomberg, it would explore the delivery of an EU consolidated tape for fixed-income instruments, with the intention to apply to become the consolidated tape provider through the public procurement procedure. 

“As an organisation, our philosophy has always been that we’re in favour of anything that drives transparency in the market. We think it drives good outcomes for market participants and encourages further electronification,” he says. 

“I think the eventual provider of a tape will be better placed if they already have experience of running similar regulated businesses, which we do through our post-trade business. Although the post-trade business isn’t exactly the same as what tape does, there are clearly some structural similarities.”