On Tuesday, MarketAxess ran the first session of a new mid-point matching tool, Mid-X, with over 50 participants. The new trading protocol is session-based and allows firms to trade against the mid-point price established by CP+, MarketAxess’ composite pricing tool.
Mid-X is initially covering European bonds including both investment grade and high yield instruments. It is expected to become a global protocol expanding into other geographies as it rolls out, although there is not a formal timeline for that at present. It will become a twice-weekly session as of 26 October 2020, running on Tuesdays and Thursdays.
Firms trading in the first session were reportedly a mix of bulge bracket dealers, smaller regional dealers, alternative investment firms and institutional investors.
“We had a lot of happy customers who were able to execute at the mid and achieve that cost saving of half the bid-ask spread,” says Gareth Coltman, head of European Product Management, MarketAxess.
Although Mid-X is similar to existing session-based platforms, they tend to use ‘work-up’ model, as in interdealer markets such as Brokertec and Nasdaq, that has a price set by a trader. By contrast in the Mid-X model the CP+ mid-price is not negotiated and users must enter the direction and size of the order they want to trade, rather than negotiating size. At the specified time an algorithm used by MarketAxess then matches up all the orders based on the mid-point price.
“We’re using the Open Trading network which is made up of hundreds of firms in Europe and CP+ which has become an industry standard in terms of pricing,” says Coltman. “Once you have those two things, brought together it is a compelling proposition which was developed in response to client demand, from dealers and from the buy side who have not had access to these kinds of protocols historically.”
By removing the negotiated element of the trade, MarketAxess says it removes some of the challenges that negotiated platforms can create for trading desks.
“A lot of the time you end up in situations where you have one winner and one loser in negotiations and by allowing people to trade at the mid we have created a very easy to use, very transparent tool to match all of these opposing interests,” notes Coltman.
Coltman observes that the all-to-all Open Trading protocol, on which Mid-X is built, has seen more dealer engagement over the past year as sell-side firms seek to offload risk in more efficient ways.
“Having access to the Open Trading network allows them to do that,” he says. “They have been doing that using our Open Trading request-for-quote (RFQ) protocol and that gives them an on-demand way to execute but they pay the bid-ask spread; here is a way – if they are happy to wait – to cross at the mid.”
The session-based model will not suit every type of investment or trading strategy, acknowledges Coltman, but he says that the protocol is part of a wider offering and collectively trading protocols.
“When comparing one protocol to another, traders think about balancing of the cost saving versus immediacy,” he says.
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