Electronic Bond Trading
Branching Out, Tradeweb in 'Strong Position,' Says CEO | Retail Bond Platforms Excel During Debt Debacle | Revenues Down, GFI Targeting Electronic CDS Trading in U.S. |
Branching Out, Tradeweb in 'Strong Position,' Says CEO
December 1, 2008
Following its 1998 launch, Tradeweb, formed a year earlier by a consortium of banks, quickly established itself as the largest institutional electronic bond trading platform in the U.S. A decade later, the Jersey City, N.J.-based firm is still expanding, both geographically and in its breadth of offerings.
Acquired in 2004 by the former Thomson Corp., Tradeweb, which last year sold stakes to ten dealers, has more than 2,000 institutional clients and trades more than $300 billion daily across 18 products including government bonds, mortgages, agencies, commercial paper, interest rate swaps, credit default swaps, covered bonds, money markets and corporate bonds. The platform saw $65 trillion in volume last year and $42.7 trillion in the first half of 2008--up 40 percent from the same period in 2007.
Its rising numbers are impressive given that they've come during a financial crisis some say could come to resemble the Great Depression. However, Tradeweb's volumes for the latter half of the year should be more telling. Tradeweb chief executive Lee Olesky contends that his company's mission to build efficient tools to access liquidity across products puts it in a "very strong position" to grow, despite the market environment.
Tradeweb, which initially opened with U.S. Treasuries, the most liquid bonds, faces little competition in many areas of institutional e-bond trading. LiquidityHub, a rival multidealer platform for interest-rate swaps, closed in March after operating for less than five months. Another platform, New York-based MarketAxess, dominates the corporate bonds business, where Tradeweb has relatively small volumes. Both Tradeweb and MarketAxess offer credit default swaps (CDS), but relatively few contracts are traded electronically in the U.S.
Tradeweb is hoping to change that. On Nov. 7, it introduced a new trading protocol for its U.S. CDS index marketplace; the functionality will be extended to European indexes in January. The new request-for-market (RFM) protocol lets clients view real-time composite prices and negotiate interactively with a single dealer and is offered alongside its traditional request-for-quote system, which since 2005 has enabled clients to request CDS prices from multiple dealers simultaneously. RFM, says Tradeweb, will help customers execute and process trades more efficiently and supports regulators' goals of reducing counterparty risk and improving price transparency.
Asian Expansion
The platform also has its eyes on Asia. On Sept. 30, Tradeweb introduced yen-denominated interest rate swaps, its first domestic Asian product; Japanese government bonds followed at the end of October. "This is part of our geographic expansion," says Olesky. "We are establishing ourselves in each of the three major regions of the world with local customers and local products that tend to be internationally traded." The company's swaps offerings now include all major currencies--U.S. dollar, euro, sterling and yen. "The same is true of the cash markets," he says.
There have also been unexpected areas of growth. "We didn't initially think that the trading of unsecured bank deposits between banks and their customers would become so critical, but it has," notes Olesky, referring to Tradeweb's April launch of cash deposit trading in euro, sterling, U.S. dollar, Swiss franc and yen; seven more currencies were added in October. "And we now have multi-billion-dollar average daily trading in deposits. That was a market where clients would pick up a phone and call a group of banks to place money; now they're doing it over Tradeweb," he says. "That's because we automated the process. We're doing the same thing in CDS. Our main drivers are to save customers time, lower their risk and increase transparency."
