Buy-side traders have responded positively to the announcement that electronic bond market operator, MarketAxess, has agreed to buy LiquidityEdge, the US Treasuries marketplace, noting that it puts it more firmly in the footprint of rival Tradeweb. Valued at US$150 million, the deal will significantly increase the government bond business of MarketAxess.
“It’s clear to me that there is a clear gap in MarketAxess’s offerings, which this hypothetically solves,” noted one US head of credit trading.
Another noted, "[MarketAxess] dominate the credit space for sure. This could take some of the reason for why traders might choose Tradeweb."
Established in 2015, LiquidityEdge has a trading model with a range of execution protocols that can connect dealers, market-makers and institutional investors to trade in the US Treasury market. Over the last year it saw average daily volumes (ADV) reach a record US$16 billion in May.
"They clearly have good tech, good connections and dealers, plus high-frequency dealers," said US-based head of fixed income trading.
MarketAxess has announced the expansion of hedging capabilities to include Treasury hedging for MarketAxess’ credit products, using LiquidityEdge’s technology infrastructure and robust liquidity network. Currently in development and targeted to launch the initial phase in the fourth quarter of 2019, this new functionality will enhance a client’s ability to simultaneously hedge a credit spread transaction within the same workflow. The partnership with LiquidityEdge will add Treasury net hedging capabilities for aggregated sets of corporate bond trades.
"If you look at how Tradeweb advertises their credit offering, they talk about the net spotting of treasuries, being able to aggregate all of your trades at the end and do one bulk spot, and MarketAxess really didn’t have that capability,” observes one global head of bond trading at a major US asset manager. “This gives them that competitive edge, where they didn’t really have a rates product before.”
Kevin McPartland, head of market structure and technology research at Greenwich Associates, says, "From Liquidityedge's perspective, scale works best in the long run. None of the big players - Tradeweb, MarketAxess or Bloomberg - is a one trick pony when it comes to how firm can execute trades, so adding LiquidityEdge to MarketAxess will help it to broaden out further."
He notes that the Tradeweb initial public offering drew a lot of new attention to the space, leading to renewed thought about the growth potential and the value of some of the fixed income platforms. However, there are limited opportunities for further deals.
"The wildcard here is Nasdaq, and what it might do with the platform formerly known as eSpeed, but if there were more M&A in the space it would be on a grander scale,” he says. "I could see some opportunity on the analytics front as the platforms have the most unique sets of data, they not only see trades that were executed but those that were never executed, which is very valuable."
The transaction is expected to close in the fourth quarter of 2019, subject to the satisfaction of customary closing conditions, including the receipt of required regulatory approvals.
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