MarketAxess aims to launch Adaptive Auto-X initially in the first half of this year to provide clients with algorithmic workflows and enable them to make the most of the company’s various liquidity pools.
Chris Concannon, President and Chief Operating Officer of MarketAxess, presented plans for Adaptive Auto-X for the company, which operates an electronic fixed income trading platform and provides market data and post-trade services, during the full-year 2022 earnings call on Jan. 25 .
Chris Concannon, Market Axess
Auto-X enables buy-side customers to automate the submission and fulfillment of Request for Quotation (RFQ) orders. As spreads widen, Auto-X automatically adjusts to ensure trades take place in market context and questionable trades are sent back to the human trader for evaluation. Adaptive Auto-X is another step in automation that connects multiple trading protocols available through Open Trading, MarketAxess’ all-to-all trading model.
Concannon said, “In the first half of this year we will have an initial rollout of our Adaptive Auto-X solution, which provides algorithmic workflows for clients to systematically access broader liquidity across multiple trading protocols. This new service aims to provide customers with additional cost savings while simplifying the customer workflow.”
Gareth Coltman, Head of Automation at MarketAxess, told Markets Media that when clients approach execution today, they have a decision tree as to what they will do with an order – send it immediately, try to tap into the advertised natural liquidity, or use it you a new protocol.
“Adaptive Auto-X allows them to replace a relatively cumbersome manual process and systematize this multi-step, multi-decision workflow to be data-driven,” he said.
At its core, Adaptive Auto-X is an algo and smart order router that allows clients to draw on MarketAxess’ predictive AI-driven analytics like CP+ and direct their orders to achieve the workflow they set, to achieve correspondingly better execution results to Coltmann. Clients can pre-define, customize and parameterize these workflows to meet the specific needs of each trading desk.
He described Adaptive Auto-X as work in progress. MarketAxess talks to customers about the product, shows them the product in its early form and hopes to launch a pilot later this year.
“Adaptive Auto-X will be a big part of what we’re working on with customers this year and beyond,” added Coltman. “It brings protocols, trading styles and liquidity pools together in one place for clients, helping them navigate the market using our predictive analytics to make better trading decisions and achieve better execution results.”
Clients tell MarketAxess that their biggest pain points are increasing cost pressures, the need to scale efficiently, and the ability for traders to leverage actionable data and access liquidity in a very simple manner. Therefore, the company’s goal is to provide all of its liquidity, data tools, and connectivity through a single interface.
automation
For 2022, MarketAxess reported a record $62 billion in Auto-X volume, up 39% year-on-year. A record 383,495 trades were completed using automated execution, an increase of 58%.
Coltman said the industry has experienced a challenging and volatile market over the past 12 months, but automation has grown each quarter as clients have continued to adopt automation into their trading desks and workflows to drive efficiencies.
“We’re seeing our biggest customers adopting automation at scale and starting to embed it into every aspect of their workflow,” he added. “Some use it for between 80% and 90% of their businesses, and we’ve also seen an increase in the number of midsize companies adopting automation.”
Source: MarketAxess
MarketAxess automated about 1.3 million transactions for customers last year, up from about 600,000 in 2020, and Coltman said the no-touch story is part of that automation journey. The company reported that a record 36% of automation deals were “no-touch” in 2002, up from 27% the previous year.
“For our clients, about a third of trades are no-touch, up from less than 10% two years ago, so that was a significant trend,” he added. “No-touch is the pinnacle of efficiency, and clients are increasingly relying on what’s possible, the depth of liquidity, and the controls they have to manage execution risk.”
Another trend Coltman highlighted is that customers are starting to increase the maximum order size they automate. In addition, in the past year, Marketaxess has expanded the range of products that can be automated by launching it in municipal and local emerging markets.
Gareth Coltman
Coltman said, “There is clearly an appetite for automation, and we have developed a toolset that brings value to every customer at their stage of this journey. Adaptive Auto-X is the next natural step in this process.”
Concannon said in the earnings call that Auto-X accounts for 20% of total trade count and 8% of credit trade volume. IInvestment grade has seen the highest adoption of electronic trading and high yield is growing rapidly.
“If you look at emerging markets, the opportunity is one of the biggest opportunities in the world,” he added.
Concannon went on to say that municipal bonds are probably the most in need of electronic adoption, especially given the size of the average ticket. As a result, Marketsaxess had a record year of electronic adoption in Munis.
MarketAxess clients trade across the fixed income landscape and Concannon believes electronic trading can reach the 90% rate seen in other asset classes. He said, “In the evolution of electronic adoption, you get to a point where you have to go all the way, not just part of the way, and your workflows become fully automated and fully electronic.”
The use of trader algorithms also continues to increase on the MarketAxess platform.
“Increasingly, customers are faced with higher ticket counts and smaller trade sizes while trying to manage their technology costs,” he said. “Our automation tools are increasingly in demand to address these growing challenges.”
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