Reimagining RFQ for Credit: The building blocks to a truly flexible approach

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By Chioma Okoye, Managing Director, European Institutional Credit, Tradeweb

Innovation, automation and collaboration – the key to returning operational capacity back to the trader in order to gain the competitive edge
Credit trading has been transformed by successive waves of electronification, first from voice to digital, then to fully automated electronic trading.

Accelerated by the move to working from home during the pandemic, the extent to which traders have embraced automation, as a way to level up their efficiency and augment their capabilities, has grown exponentially in the last three years. In the first half of 2022, 58% of in-competition European Credit bond transactions (excluding portfolio trades) on Tradeweb were executed via AiEX, our Automated Intelligent Execution tool.

Automation – the rise… and rise
The next wave of credit trading automation is not a question of if, but when. The ability to respond quickly to market changes is critical – and innovation is vital to the ability for buy- and sell-side traders to be reactive to these changes.

In the past, there was a sense that automation was only suitable for certain types and sizes of trades. But now there is far more flexibility around the range of parameters, tools and streamlining available, meaning automation can be applied more holistically than ever before.

Instead of deploying automation for just a small subset of their trades, clients can now integrate automation into their existing request-for-quote (RFQ) workflow, leveraging it flexibly across all of their trading. Automation also opens up the opportunity for traders to benefit from technology that can automate not just parts of the trade execution workflow, but the entire process.

It’s all about the data
Clients want data to predominantly inform their choice of what, when and with whom to trade. For example, transaction cost analysis (TCA), and the wealth of insights it offers, is driving traders to expand automation into a wider range of sectors and sizes of tickets.

When our buy-side clients review, iterate and refine their automation rules, they want to know what their peers and competitors are doing, so they can identify any opportunities they may be missing out on and tap into them. Some clients simply want access to data that informs their decisions; others want the infrastructure provider to share insights and lend more involved support.

Whatever the traders’ execution objectives are, we have observed there is both a magic number and composition of counterparties to place in an RFQ, dependent on the nature of the order and the data available within the Tradeweb ecosphere. There is a right time to trade, an optimal number of dealers to place in competition, and an effective makeup of those dealers.

Innovation through collaboration
At Tradeweb we’re cognizant of the continued drive for trading speed, transaction cost reduction and a minimised trading footprint, and we put a strong focus on optimisation.  We continually develop and iterate existing innovations, pushing the technology to do more, do it more efficiently – for, and with, our clients. 

Our AiEX tool is an example of this kind of outcome-focused innovation. AiEX allows the user to pre-configure a set of rules within Tradeweb, which are then used to execute an order once it arrives from the order management system (OMS).  This ‘codifying’ of execution criteria through automation has proved a significant advantage for traders needing to both optimise trading outcomes and to demonstrate the process of best execution.

The ability to intelligently determine the optimal RFQ – and later prove it has been effective – is critical, especially when there is a lack of market liquidity, because the best trading technology is meaningless if you can’t assess, identify, and capture the liquidity that drives your business. Choosing whether to send enquiries to a subset of dealers, all dealers, or the Tradeweb AllTradeTM network, within a single negotiation – is circumstantial and trade or trader specific. To genuinely add value to trades, advanced execution tools are required.

With our SNAP IOI counterparty selection feature, customers can automatically choose dealers based on untraded positions from our market-leading inter-dealer matching sessions, effectively matching with dealers that are highly motivated to price their enquiries competitively. This functionality seamlessly incorporates into both AiEX rules and manual trading. The TCA results from SNAP IOI have been outstanding – clients on average execute at mid or better when they trade with a SNAP IOI dealer.

The new paradigm
The pandemic and ensuing trend to work from home has driven a dynamic shift in how traders operate, further increasing the value of automation. Efficient workflow solutions are particularly valuable for time-constrained clients who follow a hybrid model, split between home and office. Because we continuously listen to what our customers need, we are able to develop tools that support and enhance hybrid working.

While most sell-side traders worked from their office during lockdowns, buy-side traders typically needed to manage the same number of trades from home on far fewer screens. Setting up a full office trading desk, complete with several screens, is simply not feasible in most homes. However, workflow solutions can deliver many of the efficiency benefits to those working in domestic situations.

The power of the Tradeweb platform, a constantly collaborating network.
The evolution of automated credit trading is well underway, and the power of partnership to both drive new opportunities through innovation and evolve existing innovation – be it in terms of trading protocols or functionality – is paramount.

Reimagining how you RFQ allows clients to trade the way they want and, ultimately, results in both a superior credit trading experience and better trading outcomes.

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