Julien Alexandre, Global Head of Research and Daniel Kelly, Head of Municipal Securities at MarketAxess
CP+, our AI-powered algorithmic pricing engine for the global credit and rates markets, is an integral part of the MarketAxess trading system and a critical data input and pricing source for multiple trading protocols. CP+ consumes millions of data points across various sources to help power solutions like Auto-X™ and Portfolio Trading. Beyond fuelling trading protocols, CP+ delivers consistent and unbiased data to help provide value across the entire investment lifecycle for traders, portfolio managers and quants. CP+ is a major leap forward in bond pricing and provides heightened accuracy to valuations across global credit, rates, emerging markets, and now, the municipal bond market. Julien Alexandre, Global Head of Research, and Daniel Kelly, Head of Municipal Securities, discuss why MarketAxess is bringing the power of CP+ to municipal bonds and what this will mean for increased transparency across muni e-trading.
Since first launching in 2017, CP+ has become a key pricing tool for corporate and emerging market bonds. Can you walk us through how it’s transformed trading in these markets?
Julien Alexandre: CP+ has transformed trading in corporate and emerging markets by enabling more efficient electronic execution through protocols like Auto-X for automated RFQ execution, Portfolio Trading for basket execution, and Mid-X for anonymous crossing at CP+ mid-price. Along with Open Trading®, MarketAxess’ all-to-all trading marketplace, precise pricing solutions like CP+ lowers the barriers to entry for price makers, allowing them to confidently provide liquidity across a broader range of securities using CP+ as a reliable reference price. Beyond execution efficiency, CP+ also helps traders identify opportunities and mispricing through continuous, real-time price updates across both liquid and less-liquid bonds.
This pricing engine leverages our proprietary access to unique data in combination with AI technology. CP+ derives robust pricing inputs, using the entire stack of inquiry responses sent by liquidity providers, regardless of if the bond traded or not. In combination with platform data and trade data from TRACE and TraX, CP+ generates over 50 million daily price updates across more than 350,000 bonds globally, updating as fast as every 15 seconds. Our AI models provide accurate pricing for less liquid securities by analysing relationships between similar bonds, while also uncovering complex and non-linear relationships between a diverse array of pricing inputs, incorporating non-trade signals like dealer runs and RFQ responses.
Now that CP+ will expand to cover municipal bonds and given the fragmented nature and specificities of the muni market, how will CP+ address the pricing challenges there?
JA: The municipal bond market’s fragmented nature presents unique pricing challenges that CP+ is well-positioned to address. Our AI models excel at extracting pricing signals from multiple data sources, which is crucial in munis where trading can be sporadic.
CP+ can analyse relationships between similar issuers, sectors, and maturities to generate accurate pricing even for infrequently traded bonds. Drawing from our success in other fixed income markets, we expect CP+ to bring greater transparency and efficiency to muni e-trading by providing reliable, real-time pricing across the full spectrum of municipal securities.
Additionally, as the municipal market evolves, where we are seeing more trades but with a lower average trade size, the need for accurate municipal bond pricing, tailored to different trade sizes, is paramount.
Looking at the data that powers CP+, what unique advantages does MarketAxess have in both the corporate and municipal bond markets?
JA: MarketAxess has unique data advantages across corporate, emerging and municipal bond markets through our position as a leading electronic trading platform. In corporate and emerging bond markets, we see over 300,000 firm levels per day from the entire stack of RFQ responses, whether inquiries execute or not, providing CP+ with valuable pricing signals beyond just completed trades.
Daniel Kelly: Our growing municipal bond franchise – which saw a record market share of 8.8% in September – generates similar proprietary data including offerings, RFQ responses, and trading activity that will help CP+ generate accurate pricing even for less frequently traded issues.
The municipal bond market seems to be embracing technological transformation lately and adding CP+ represents a step in the right direction. What other innovations has the MarketAxess municipal franchise seen this year?
DK: This year alone, muni e-trading has benefitted from significant technological innovation. We’re extremely proud of this latest expansion of CP+, but this is not the first or last innovation we’ll bring to the municipal sector. Client and dealer appetite for workflow efficiency, new technology and demand for diverse trading tools is higher than ever and the market is ready. That’s why in the past twelve months, in addition to launching CP+ for Munis, we’ve also introduced Tax-Exempt Portfolio Trading, enhanced automation tools, and expanded liquidity sources to the platform.
I’m proud to say that earlier this year, we announced our first PT for Tax-Exempt Municipal Bonds, bringing greater efficiency and certainty of execution to muni baskets of up to 1,500 CUSIPs. Bringing a PT tool to MarketAxess was one of the most requested enhancements from our clients, and now clients can send large, complex and diverse lists to multiple counterparties or a single dealer, negotiating price improvements and trading discreetly on a diversified basket of Tax-Exempt Munis in one singular point of transaction. With Muni CP+ now providing increased price discovery for municipals, we believe tax exempt portfolio trading in the municipal market will become a more reliable protocol for clients looking to exchange baskets of risk.
We also entered a strategic partnership with ICE Bonds, effectively connecting two complimentary liquidity networks for municipal bonds, which provides access to deeper liquidity in the fixed income markets and allows ICE Bonds’ ATS to communicate with our Open Trading network, ultimately expanding the depth and reach of our respective global user bases.
And, of course, we’ve brought automation to the market with Auto-X RFQ for Tax-Exempt Muni bonds to optimize selling execution workflow. Auto-X RFQ for Tax-Exempt Munis provides clients with a simplistic way to obtain efficiency while leveraging your direct counterparties in anonymous all-to-all workflow for best execution.
