Tradeweb founder and Broadridge to launch bond trading venue

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Broadridge Financial Solutions has conducted live trades on a new artificial intelligence (AI)-driven corporate bond trading platform, LTX, developed in partnership with Jim Toffey, founder of Tradeweb Markets. He has worked with Broadridge since 2016 to create LTX, which combines AI with a new digital execution protocol, RFX.

Speaking at a briefing about the new venue, Toffey noted that sell-side firms found that the process of engaging with clients today is inefficient and hard to manage at scale.

“[At present] the first customer to say ‘I’ll take those bonds at that price’ does the trade, that’s really how the voice market works today,” he said. “It’s very bilateral, there is no price improvement and there is no ability to aggregate liquidity across a lot of customers all at once. For perspective the average dealer has over 1000 institutional investors in their customer base.”

Toffey, CEO, LiquidX

He continued to explain that it is hard for dealers to aggregate liquidity across 40-50 customers which is what LTX plans to support. The platform’s goals are to help dealers find natural buyers or sellers, connecting to them all with one click and allowing them to participate in that transaction, express the interest for the amount of bonds they want at the price levels they want and then let the platform find the best execution for that order for the dealer.

Built on Broadridge’s US Fixed Income post-trade processing platform, which reportedly processes over US$6 trillion in notional volume per day across 40+ dealer clients, LTX uses AI to help broker-dealers find the other side to trades quickly in order to better support trading, often on a ‘riskless principal’ basis so they do not have to warehouse risk. Using the data it holds on bond trades, Broadridge is able to find natural potential buyers and sellers of bonds.

There are three main innovations in LTX which have been demonstrated. The first is a ‘Liquidity Cloud’ in which firms can share their trades under consideration, creating an anonymised views of pre-trade liquidity.

“In many cases asset managers told us that over 50% of the time when working on trades, by the time they talk to a dealer about the levels they can transact at, they realise they cannot get the trade done,” said Toffey.

The second is LTX AI which, with a dealer’s permission, uses all of Broadridge’s records of trades to tell dealers who the right customers are to contact about a trade for any particular bond. The third is the RFX protocol, an evolution of the request-for-quote (RFQ) protocol, that allows firms to bid at the amount they want – not just at the offer price – and then being able to see prices from other bidders, and to improve their price on that basis.

Asset managers will be contacted for participation via their order management system, several of which are currently being integrated with using standard FIX messaging protocols.

Over 25 asset managers participated in test trades on the platform, which began operating in mid-May 2020, and a select group participated in the first live trades. The platform is expected to fully launch in Autumn 2020, while Broadridge reports it is currently live with several broker dealers and their buy-side clients. LTX is in active discussions with over 20 broker-dealers about joining the platform.

Broadridge says that the total size of the US corporate debt market has grown to nearly US$10 trillion with only a small fraction traded daily and an even smaller fraction traded electronically. Of bonds that do trade, fewer than 25% trade electronically today. According to a Greenwich Associates report published in January 2019, 82% of corporate bond investors found trades above $15 million in size “very difficult” to execute. LTX’s AI, Liquidity Cloud and RFX are expected to address these challenges.

Tim Gokey, CEO, Broadridge

“Over the past three years, Broadridge has been working with a number of dealers and their buy-side customers to develop an AI-enabled digital platform creating liquidity, digitising workflows, and increasing efficiency in corporate bond trading,” said Tim Gokey, Broadridge CEO. “We’re excited to announce the creation of LTX based on successful trading activity on the platform over the past several weeks. This is the latest example of Broadridge applying next-generation technologies to create powerful industry solutions for broker-dealers and asset managers.”

Toffey, CEO of LiquidX, leads LTX alongside Vijay Mayadas, president of Global Fixed Income and Analytics at Broadridge, supported by a 60-strong team of fixed income sales and trading professionals, technologists and data scientists.

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