About the survey: The Trading Intentions Survey is conducted by The DESK, asking buy-side heads of trading which platforms they currently use to support credit trading, and which ones they plan to use in the near future.
We took the results of 2017’s Trading Intentions survey and excluded data from those firms without any US trading desks.
Overall there is still clearly an appetite for new platforms amongst the buy-side trading desks. Several asset managers are finding specific platforms so useful that the buy-side firms have become major users, despite the low levels of participation from other users. That suggests some liquidity aggregation platforms are attracting attention based on something other than their ability to provide contact with other trading firms, either in functionality or through niche services.
The most apparent result was the increase in the number of platforms being heavily used. Twenty percent of traders are ‘major users’ of proprietary liquidity aggregation tools, where none had been using these tools to any great extent in 2016. Block trading firm Liquidnet and FIX messaging system Neptune both had 10% of traders classify themselves as major users this year, having had no major users in 2016.
Of the major three platforms, Bloomberg showed a slight increase in user base, while both MarketAxess and Tradeweb experienced slight declines. Although not charted, due to the low numbers, several platforms also saw single buy-side firms classify themselves as major users of Aladdin, Algomi, BGC, Charles River and Thomson Reuters. Aside from BlackRock’s Aladdin these systems had not had any users classify themselves as ‘major users’ in previous years.
The levels of use amongst regular users was relatively even when set against 2016, with 24 platforms referenced overall, four having been replaced by new names, albeit amongst single digit users. Among these platforms several stand out in terms of their growth – Liquidnet, Algomi and Neptune all nearly doubled the number of firms whose traders classified themselves as users.
Overall the number of traders planning to move to new platforms has fallen considerably, with three likely reasons behind the fall. The first of these is that traders planning to move onto platforms had in fact moved; several platforms have seen the number of users / major users grow as noted above.
The second is that platforms they had already engaged to aggregate liquidity were working, reducing the need for any further platforms. A third possible explanation is that the level of non-trading work – such as compliance activity – being placed upon buy-side trading desks has increased in 2017 to the point that engagement with these platforms has been pushed down the priority list.
Nevertheless, Algomi, Trumid and KCG Bondpoint all had healthy levels of interest from trading desks, giving them a good opportunity to convert into growth. UBS Bond Port and Charles River have also seen growing pipelines of interest.
When asked to assess which are the best platforms in the search for liquidity, the three major incumbents rank most highly, but Liquidnet has leapt ahead, while Algomi has fallen back. However, given a choice of which platforms liquidity should become aggregated on, Liquidnet has seen a slight drop when compared with 2016 – as has Bloomberg – while Tradeweb and MarketAxess have both seen growth.
Finally, sentiment has begun to change around the influence of market participants on improving liquidity. Confidence in the ability of issuers to make a difference, something BlackRock had originally proposed in 2014, has declined. While buy-side traders are still seen as most influential, confidence in them has fallen. In the same period, non-traditional liquidity providers and regulators have maintained their positions.
Conclusion
The consolidation of platforms – from Trumid’s takeover of Electronifie to Algomi’s partnership with Euronext – is indicative of the tough headwinds platform providers face. Several are proving successful in building up a user base of buy-side traders, despite the considerable competition. Although incumbents have not lost their grip there are major growth opportunities and further consolidation could see some new giants emerge.
©TheDESK 2017
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