Behind the Market Structure: An Interview with Chris Concannon, CEO, MarketAxess
The fixed-income markets are poised to enter the next phase of electronification which will change both trading behaviors and outcomes, declares Chris Concannon, CEO, MarketAxess.
“In the first phase—I call it the replication phase—we moved what the folks did on the phone and in chat into electronic form. It was replicating the same outcome. But the next phase is where we change behavior and we change outcome,” he tells Kevin McPartland, Head of Market Structure & Technology Research, Coalition Greenwich.
Changing Behaviors and Outcomes
With fixed-income yields at historic levels today, growing investment flows will create new demand for execution from large asset managers, believes Chris Concannon. “As flows come in, they are going to need to adopt highly scalable electronic solutions,” he says.
“[Our new client execution algo] Adaptive Auto-X puts it all together into a behavior that we think clients find beneficial. It allows clients to provide liquidity but at the same time, the algo will smartly switch and cross the bid-offer spread and execute an RFQ. So, you get done on your order, but you increase your likelihood of substantial savings by being a provider of liquidity.” That saving changes the trading outcome.
“We're designing things that change the outcome with electronification, not just change the form in which you do it,” asserts Chris Concannon. He expects the behaviors “of the buy side finding efficient solutions to execute a trade” as seen in other markets like equities—to “shift into the fixed-income market.”
Algos and AI
MarketAxess is leveraging tools that work seamlessly across markets to enable this shift. For instance, it is using the FX and equities technology built by Pragma to accelerate the development of quantitative execution algos in the fixed-income market.
“A cutting-edge equity algo business is a key ingredient to have a powerful fixed-income algo. We're going to benefit from all that IP they've built, but also the future IP of that business,” says MarketAxess’s CEO.
Undoubtedly, data is a key ingredient—and AI, the lever for slicing and dicing it for efficient workflows. MarketAxess’s data products are all powered by AI today, whether it’s pricing orders using AI-derived pricing or assessing the depth of the market based on real-time trades. Since bond prices are often unique to a client, it has a number of data feeds that can even “give you down to the type of client, what price you should expect.”
“The bond market is not the most transparent market; the best pre-trade analytics people use is an indicative price from a dealer called an axe. Most dealers will trade on that axe, but there's always time to negotiate. We include in our data all those inquiries that fail. Our data is consuming all those prices, aggregating it, and forming price or forming depth,” elaborates Chris Concannon.
Opportunity For Growth
He believes the opportunity is huge, going forward, both for automating the 40% of the market that has already switched to electronic trading, and for converting the remaining 60% that’s still on voice and chat. The competitive dynamic unfolding among large dealers is accelerating this electronification.
“When I look at what we're building, we're changing client behavior and how they engage the market. To me, that's powerful,” says Chris Concannon.