- MarketAxess, the largest electronic marketplace for US corporate bonds, has created a set of indexes to help find the most liquid bonds across sectors.
- The tools are aimed at helping the creators of exchange-traded funds build products composed of more liquid bonds, thus allowing them to trade more efficiently, Chris Concannon, MarketAxess' president and chief operating officer, told Business Insider.
- MarketAxess stands to benefit from more fixed-income ETFs being issued, as it could lead to more automation in the market.
The largest electronic marketplace for US corporate bonds just launched a set of tools aimed at helping create fixed-income exchange-traded funds that will be easier to trade.
MarketAxess announced on Monday the release of five indexes that ETF sponsors can use to create products that trade more efficiently, which has long been a bugaboo of the fixed-income space.
Unlike equity-based ETFs, which are built on actively traded and quoted stocks, a fixed-income ETF is often composed of some illiquid corporate bonds that are hard to trade. As a result, ETF market makers, which trade the underlying bonds as a hedge, are forced to widen their spreads to protect themselves against the additional risk.
Chris Concannon, MarketAxess' president and chief operating officer, told Business Insider the new indexes offered better insight into the most heavily traded bonds that would be ideal to include in ETFs. The five indexes are updated daily and offer measures on price, spread, yield, and bid-ask terms.
"It helps the ETF sponsor or it helps the portfolio manager to select the right instrument. They can look at our index list and see these are the latest, most liquid bonds across sectors that I want in my index or in my ETF," Concannon said. "Your cost of trading that ETF or your cost of holding your portfolio is that much more attractive, because we are incorporating the cost of trading fixed-income products into our index."
The US corporate-bond market is notorious for its lack of transparency and data, as most trades are done over the phone. MarketAxess is the dominant electronic platform in the space, handling roughly 85% of trading done electronically, according to research from Greenwich Associates. But that represents only a small portion of the overall market — about 74% is still done over the phone, as most of the deals are so large and complex.
Concannon, who joined MarketAxess at the beginning of the year, brings a fresh perspective to the space. The former president and COO of Cboe Global Markets is a veteran of electronic trading, having served as CEO of Bats Global Markets and spent time at Nasdaq, the trading platform Instinet, and the market maker Virtu Financial.
Upon arriving at MarketAxess, Concannon said, he was impressed by the indexes that David Krein, the firm's global head of research, had created and validated internally off the market data the firm had collected.
"I said, 'Oh my God. This is a huge commercial value. We need to get this out right away,'" Concannon said, adding that ETF sponsors "are interested in this information because it is important to how they select and create their portfolios."
Concannon said some of the larger ETF players were already looking at liquidity and volume data when forming their products. However, he added, MarketAxess has a unique insight into how many buy and sell orders are open for a given product, what it's pricing at, and what it will cost to trade.
To be clear, MarketAxess stands to gain a lot from a more efficient fixed-income ETF marketplace.
"We benefit dramatically as a result of every fixed-income ETF that is issued. It is driving automation in the fixed-income market," Concannon said. "The market makers that support those fixed-income ETFs want to trade in a more automated fashion, and they want to trade product that is more liquid. And that is really what we are delivering to them."
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