ICMA and the FIX Trading Community have issued a white paper examining issues with market axes in an increasingly electronic bond market, warning that both the buy- and sell-side need to be confident in the security and accuracy of their communications.
“Translating this age-old process into the new world of electronic trading is proving more difficult than for other protocols,” states report author Andy Hill, managing director and co-head of market practice and regulatory policy at ICMA.
Although dealer axes have historically catalysed client activity, ICMA suggests that this is changing in the electronic age.
“Buy-side portfolio managers and traders decide on which bond they want to trade and what size they want to buy or sell. Their goal is then to find the most efficient way to execute, with the fewest tickets and minimum price slippage.
“This is where not only visibility of axes across all their dealer counterparties is key, but additional data fields and further granularity can point their order/execution management systems to direct the optimal request-for-quote.”
In the paper, ICMA notes that sell-side axes are often unreliable, with a lack of clarity around points such as whether they are based on actual trading positions. In an electronic trading environment, finding the answers to these questions can be onerous.
Also of concern is what counts as an axe; certain buy-side firms do not consider dealers’ postings on venues as genuine, ICMA reports; “[Often] dealers will post axes on both the bid and offer side of the market. While the quoted prices and sizes may be executable, the view of many is that these are ‘markets’ (or ‘runs’), not axes, and should be identified as such.”
In 2021, ICMA released an industry guide to best practice for axe (bond pricing) distributions. A standardised approach to bond pricing distribution would allow the sell side, trading venues and technology providers to offer more products to the market, minimise the chances of stale axes and out-of-date prices, and boost real-time electronic bond pricing distributions, it said.
The buy side would then be able to more confidently use auto-pricing tools and trust trends seen in e-trading, it added.
Dealers may be posting axes on both sides of the market due to smart dealer selection algorithms, the report says, which focus on flagged axes. Whether two-way axes are possible, or sustainable, is a contested point, with some dealers arguing that they can be used immediately after a new bond issuance, for hedging, or when a dealer wishes to offload a position on one side while building it to a more sustainable lot size.
Multiple axes may be shown in the same bond when dealers are running algo and trader books in parallel.
“This has led to the buy-side suggestion of an additional data field to indicate whether axes are algo-based or not. Some sell-sides, aware of this issue, are looking to aggregate their axes into a single interest,” ICMA observes.
However, others on both sides of the market have suggested that change is not necessary; some on the sell side believe that as long as a dealer stands by their axe its direction is irrelevant, while some on the buy side use their own analytics to monitor dealer performance.
Information leakage is also a concern for sell-side axe providers, who could be at a disadvantage if their positions are shared with the wrong parties, or shared too broadly. In an electronic environment, this issue is exacerbated – the level of control that dealers have over how their information spreads has been reduced.
“Putting tighter controls around axe information to limit data seepage should help,” ICMA notes, but acknowledges questions of data ownership and contractual rights that could arise. Direct connectivity between dealers and clients could be a solution, it suggests, albeit a pricey one. An alternative could be regulatory intervention: “Just as laws such as MAR restrict market participants’ ability to act on specific non-public information, why not make it illegal to sell certain data?”
A joint ICMA and FIX workstream intends to support reliability in bond market pre-trade transparency moving forward.
“While the white paper does not set out recommended best practices, it provides a clearer articulation of the challenges facing the industry and is intended to support further discussion on how to improve the integrity, usefulness and safety of axe data in modern electronic trading environments,” ICMA stated.
©Markets Media Europe 2025
