MarketAxess just released a key tool for improving how fixed-income ETFs are built, and it could lead to further automation in the market

Chris Concannon, MarketAxess
Chris Concannon, MarketAxess president and COO


  • 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 ETF creators build products composed of more liquid bonds, thus allowing them to trade more efficiently, Chris Concannon, MarketAxess’ president and COO, 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 ETFs that will be easier to trade.

MarketAxess announced Monday the release of five indexes that ETF sponsors will be able to 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 offer better insight into the most heavily-traded bonds that would be ideal for inclusion 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.”

Read more:JPMorgan and Citigroup just closed bond desks for smaller trades in favor of algorithms. It’s another sign that robots are taking over.

The US corporate bond market is notorious for its lack of transparency and data as a vast majority of 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. However, that only represents a small portion of the overall market, asapproximately 74% is still done over the phonedue to the majority of deals being 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 also spending time at Nasdaq, trading platform Instinet, and market maker Virtu Financial.

Upon arriving at MarketAxess, Concannon said he was impressed by the indexes 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. “[ETF sponsors] are interested in this information because it is important to how they select and create their portfolios.”

See more:Electronic-trading veteran Chris Concannon has a new role disrupting a market going through a ‘once in a lifetime’ evolution

Concannon said some of the larger ETF players are already looking at liquidity and volume data when forming their products. However, 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, he added.

To be clear, MarketAxess itself 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.”

Sign up herefor our weekly newsletter Wall Street Insider, a behind-the-scenes look at the stories dominating banking, business, and big deals.

This is a subscriber-only story. To read the full article,simply click here to claim your deal and get access to all exclusive Business Insider PRIME content.


BI Prime
Fixed Income
corporate bonds

Read More

Be the first to comment on "MarketAxess just released a key tool for improving how fixed-income ETFs are built, and it could lead to further automation in the market"

Leave a comment

Your email address will not be published.