Emerging markets are likely to see considerable volatility in 2025, making the timing and specificity of trading decisions key for banks and investors alike. Finding the right path to liquid, tradable instruments requires a lot of work by traders, using relationships and pre-trade data to optimise decisions before they go to market.
Electronic trading may only make up between a fifth to a third of traded volume, but Tradeweb’s Tim Cook explains that delivering access to both cash and derivative instruments, with a wide range of counterparties across buy- and sell-side, is enabling that access, and in turn delivering better value outcomes.
Interview Transcript
Dan Barnes How are buy- and sell-side trading desks looking for value in emerging markets today?
Tim Cook Value can be looked at in a number of different ways. Firstly, we see value being found in some of the frontier markets, which have been traditionally more difficult to access. We’ve seen the recent inclusion of Indian sovereign debt into the main emerging market indexes. We’ve also seen increased appetite for the Middle East. Tradeweb was in fact recently awarded the first ever alternative trading system license for the Kingdom of Saudi Arabia; something we’re very, very proud and excited about. We also see value being found in the relative value opportunities that exist between products. The silos that have traditionally existed within buy side institutions have in a way been removed, and we’re seeing the emergence of multi-asset traders. And in this space we see the packaging of trades being found, so an example would be asset swaps trading an interest rate swap and a bond on a contingent or non-contingent package. And, lastly, I think value is being found on the actual cost and efficiency of execution, so the real mechanics of trading. On the buy side, we’re seeing the requirement to shift their positions in a way that sort of minimizes market impact; it leads to best intended outcome, but really frees up more time for them to be able to concentrate on the less liquid or more complex trades. And in a similar way, we see the sell side who have been faced with shrinking balance sheets, rising cost of capital, and also a higher velocity and volume of inquiries coming through their desks. We’ve seen a rise of algo trading, which again has allowed the line trader more time to concentrate on the higher value line items, you know, managing their own risks and costs along the way. And so when we think about value in this space, it’s really about how do we create time? How do we create the right tools in which we can give value back to the trader? Though these challenges are not unique to emerging markets, the sort of dependency is more detailed than it is in developed markets. And so the opportunity to solve for these carries a bit more significance.
Dan Barnes Very good. Now, clearly in a fragmented market, as emerging markets are, network is key. How are you providing that network to your clients and what impact does that have?
Tim Cook Tradeweb stands in a very unique position. We are a truly global multi-asset trading system. And what we’ve built over the last 25 years helps us massively in emerging markets, which by their very nature are multi-asset, multi-product, multi-region, multi-currency. And so on one level, we think about how do we incorporate all of that into a single platform, into a single log in, something that’s available 22 hours a day – and that’s something we’ve been very keen to achieve. The second part of the network equation is really the participants that are involved. So, on one side we’ve got the institutional, the dealer-to-client world. We also have the interdealer pool or the wholesale markets, which is serviced through products such as emerging market sweep or dealer request-for-quote (RFQ). And then we’ve got the retail segment serviced through our Tradeweb Direct infrastructure. And our challenge, if you will, has been to bring all of these into a global and holistic network. And lastly, the network side is looked at from also our local footprint. So we’ve been very keen to build up our presence in all of the regions that we cover globally. We’ve deployed resources into the likes of the Middle East, into LatAm and more recently into India as well. Having that local presence is incredibly important, not just to create a highly valued and great service, but also really to strengthen those relationships, because in this space we do believe that relationships are just as important as the technology that we provide.
Dan Barnes Absolutely true. Now, what sort of barriers are your clients actually facing and how are you helping them to overcome those?
Tim Cook You can look at emerging markets and by asset class no more than 20 to 30 percent of notional volume is traded through electronic platforms. So that sort of suggests, well, there has been some good work that’s been done, but there’s still a long way to go. And I think what will facilitate an increase in this will be two things; it will be firstly a deeper and broader liquidity pool between local and global participants, and then it’s really about evolving the technology and the protocol toolkit that will support that. And that takes a lot of collaboration and innovation on all sides of the market.
Dan Barnes What does that mean in terms of the work you’re doing on a practical level?
Tim Cook The first part is to make sure that we cover all of those different asset classes – cash bonds, hard currency, local currency; we have interest rate swaps, credit default swaps, ETFs, repo. The second point is around how we start to package some of those together. Our first iteration of this has been with asset swaps, where a local rates trader can trade the interest rate swap and the bond on a contingent package. But we see huge opportunity in this space, whether that’s credit default swaps versus bonds, ETFs versus portfolios. The third side is really around collaboration. There are instances where Tradeweb as an operator hasn’t historically had a footprint in certain markets. And an example of that would be a collaboration that we recently did with FXall who are a part of the London Stock Exchange Group. They offer an excellence in service in the FX market. We have integrated with them to allow our local currency bond traders to come into our platform, they can trade their local currency bond, and then to mitigate or manage their FX risk, they’re able to write a non-deliverable forward or an FX Swap all through the Tradeweb UI but connecting through the FXall channels. When we think about all of these asset classes, all of these products and packages that we put together, we have to think very closely about the protocols that we have to support that. Will this require Request for Quote, Request for Market, Click to Trade, list trading, portfolio trading? Does it require automation through AiEX smart dealer-selection tools? We really have to think about how we match the product to the execution type.
Dan Barnes And then what are the factors that will continue to drive the evolution of emerging markets trading?
Tim Cook Firstly, there is a pressing need in emerging markets to protect the market data of both the buy side and the sell side, and we will very much be at the forefront of machine learning tools that will use intelligence to ensure that we can match the right liquidity provider with the right liquidity taker, really mitigating market impact. We also believe that at the heart of a fully-fledged emerging market business is the requirement to have very robust relationships. So, at the heart of everything that we do will be really recognizing the value that both the buy side and the sell side bring one another. And we believe that by putting all of this together, we will really be able to cement ourself as the leading and fastest growing network in emerging markets.
Dan Barnes I’d like to thank Tim for his insights today and, of course, you for watching. To catch our other shows, including Trader TV This Week at 6:45 a.m. UK time every Monday morning, go to tradertv.net.
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