Accessing the widest liquidity stream

Published on 2 December 2020

Traditional dealers provide the the most valuable and consistent liquidity pool for fixed income trading, but non-dealer liquidity is growing in importance. Where buy-side traders need access to a wide range of trading counterparties, electronic trading platforms are able to deliver matching of trading flows through innovative new trading protocols.

Chris Bruner, head of US Credit Product at Tradeweb, guides us through the choices traders can make to ensure the access to liquidity they have for trading corporate bonds is delivering best execution for their investors in all circumstances.

Dan Barnes Welcome to Trader TV, I’m Dan Barnes. Buy-side traders want access to sell-side dealer liquidity, but they also want access to liquidity from non-dealer providers. I’m going to speak with Chris Bruner, head of U.S. Credit at Tradeweb, about the different protocols buy-side traders can use to access liquidity across a range of different counterparties. Chris, welcome to the show.

Chris Bruner Thanks, Dan, nice to be with you.

Dan Barnes So tell us, dealers are obviously integral to liquidity, but in the fixed income markets, we are increasingly seeing non-dealers becoming supportive of liquidity too. How are buy-side firms managing access to both of those groups?

Chris Bruner What we find is traders build a playbook and for different types of trades, they generally have a sense of how they want to trade and who they’re going to trade it with, whether it’s a wide array of counterparties that might include non-dealers. Or whether it’s a larger block, illiquid relationship trades, that they hopefully already have a sense from their data aggregations who they might go to for certain trades. It used to be a fairly simple playbook with only a few different things; voice trades and RFQs. But now that playbook is getting a lot richer with other protocols like portfolio trades, as well as the decisions around, ‘do I fully automated trade?’ Which might free you up to work on your larger, more complex trades. What we really see is that playbook extending as more and more tools come into the marketplace.

Dan Barnes What is Tradeweb Alltrde and how is that different to other trading protocols?

Chris Bruner Alltrade is an all inclusive trading network that brings together thousands of participants on our platform from our institutional sector, across our dealer-web and our wholesale sector, as well as a massive amount of liquidity from thousands and thousands participants on our retail network. Really, the umbrella branding encapsulates all the different protocols that we employ, to connect up those participants, which has been a multiyear effort and does involve a number of different protocols. So at the core of it is our aal-to-all RFQ platform, and that has institutional clients as well as dealers taking liquidity from hundreds of other firms on the platform, thousands of other users at any time. You can always access the broader set of participants, and it’s really easy to access both your attributed relationships, as well as the anonymous counterparties, so the hundreds of people you might not have a relationship with. And that’s something we launched a few years ago. But it also includes our session trading, so that’s dozens of dealers coming together with billions of orders each day.  Alltrade encapsulates that whole community, that all inclusive network of how we can maximize the connection and the trading liquidity for each participant.

Dan Barnes What do you think of 2020 with the market conditions we’ve seen this year, has taught us about the importance of having diversity and counterparts?

Chris Bruner So I think we’ve seen two lessons. One is really around diversity and maximizing your reach, but being able to do it in an efficient manner, it has to be quite instantaneous. You have to know that there’s strong liquidity available for you. The second lesson that we’ve learned is just the importance of your strongest counterparties remains paramount. Being able to combine liquidity from your important, attributed counterparties with the anonymous liquidity available, as well as sometimes just going straight to only those attributed counterparties. We saw that through March and afterwards, that not only did the component of trading that happened anonymously on our system go up to almost 40%, we actually saw a huge rise in voice trading and people using newer protocols like portfolio trading that are only attributed protocols. You’re going to your biggest relationships to move larger size risk in an effective way.

Dan Barnes But how else do you see firms getting access to a wider range of liquidity today?

Chris Bruner What we find is they are coming to places like us, to try to be basically a normalization layer for their workflows. And so our goal is always to listen to what clients need on both the buy-side and the sell-side, and in a lot of cases that’s really just making things more efficient for clients. So fx, relationship trading is still a component of what we do, a very big component, but if we can make it easier to aggregate the data, easier to access the right axe at the right time, and then execute it and put it into mechanisms that might save you money across all of your trading for us – like multi-dealer netting is one of those mechanisms – then we can provide what clients need; which is the combination of relationship liquidity, non-relationship liquidity and just increase their efficiency. We find that we’re actually very knowledgeable about how they want to trade in the best ways for them to extract liquidity. What we provide again is that normalization layer, so lots of different clients can do it the same way. Wherever there’s a repeatable pattern, that’s where we hope to be able to step in and make the market that much more efficient.

Dan Barnes When you have additional tools like Rematch, whereabouts does that fit into that execution process?

Chris Bruner Clients are going to have an entry point to our system and that doesn’t usually change. So dealers may come in through one side of our system, fx off of our dealer-web platform, and institutional clients will come in off of a different segment, and then retail clients also have their own user interface. What we’re doing in the background is linking all of those pools, so that they don’t need to worry about that. They can come in through the same interface they’re used to. So Rematch is a really important linkage between the wholesale community and the institutional community. I mentioned sessions trading, and what you can now do with Rematch as a dealer is; if you have unmatched orders and most of the dealers have lots of unmatched orders after they match in the session, you can now send those out as automated RFQs via our AiEX technology onto the all-to-all platform, as an additional way to get the other side of your trade matched.

Dan Barnes What difference is that ultimately making to the execution outcomes of your clients?

Chris Bruner Usually we talk about reduction in costs and increase in liquidity. Those are still the primary ways. Having a better set of tools will improve the client’s ability to do their job. Now, what we also find is that’s a fairly complex optimization that the clients want. It’s not for us to tell them which of those priorities may be more important at a point in time. So fx, on a list of RFQs, maybe it is more cost based, and maybe they are looking across thousands of trades they do over time and trying to reduce that cost. But if they’re trying to execute half a billion dollars on a Friday afternoon of long day risk, which they can now do with mechanisms via portfolio trading in, say, 30 minutes instead of all day or multiple days, that itself is a huge boost in liquidity. And so they might decide they’re willing to pay more for that. Market velocity tends to go up as these tools get used. We’re always excited to see clients using them, because invariably they think of things that we didn’t think of. And portfolio trading as well as Alltrade, are two areas that we see growing based on the client feedback as much as anything.

Dan Barnes Chris, thank you so much.

Chris Bruner Thank you, Dan. Nice to see you.

Dan Barnes I’d like to thank Chris for his insights today, and of course you for watching. To catch up on our other shows or to subscribe to our newsletter, go to TraderTV.NET, or ETFTV.NET.