Tradeweb is expanding portfolio trading to its institutional marketplace in Europe as the electronic marketplace for fixed income, derivatives and equities also enhanced this trading protocol for corporate bonds.
Portfolio trading at Tradeweb allows institutions to package a number of bonds into a single basket, negotiate a portfolio level price for this basket and execute in a single transaction.
Conlin, US institutional credit product manager at Tradeweb, said in a blog that portfolio trading was launched due to the availability of new sources of liquidity in fixed income.
She explained there are now numerous dealers and liquidity providers who can algorithmically price thousands of bonds in real-time thanks to the growth of fixed income exchange-traded fund assets; the entrance of non-traditional market makers into fixed income as banks have reduced their balance sheets; and the increase in all-to-all trading, which allows the buy side to make prices.
Portfolio trading is more efficient than trading securities one by one, or using a list request-for-quote protocol to trade many bonds at once, which may impact prices. She added that trading with an individual portfolio trader at a bank can also minimize information leakage.
“Designated portfolio traders are versed in the fixed income ETF ecosystem and can leverage the create-redeem processes to smartly price baskets of risk,” Conlin wrote. “This has been common in the US, and is becoming more common in Europe.”
In addition, the ability to view aggregate basket portfolio-level statistics and pricing for the trade in its entirety can be used for best execution and transaction cost analysis.
Ted Husveth, US institutional credit product manager at Tradeweb, said in an email to Markets Media that any corporate bond can be included in a portfolio trade.
“That’s one of the great benefits of doing portfolio trades: because you’re effectively shifting risk on a consolidated basis across line items, you can actually get more competitive pricing, including for more thinly-traded securities,” he added.
Portfolio trades can be integrated with Tradeweb’s Ai-Price tool which provides real-time reference pricing for more than 18,000 corporate bonds. Tradeweb’s post-trade service, net-spotting, can also compress interest rate risk through hedging on the firm’s US Treasury marketplace, giving clients the opportunity to reduce the costs of their portfolio trades.
Tradeweb said in a statement that portfolio trading for corporate bonds has facilitated more than $20bn (€18bn) since launching in the US at the start of this year, with single trades as large as $1bn in notional value. Husveth said that activity might have been expected to be a little more sporadic given the chunkier size of portfolio trades.
“While it was certainly the case for those very early first trades, we were very pleasantly surprised by the extent to which clients came to rely on it as an entirely new liquidity source, and how quickly volume traded picked up,” he added.
Some clients are executing portfolio trades with Tradeweb every day.
“It’s those participants we consulted when we went about adding new functionality that allows them to submit trades to multiple liquidity providers, and balance the potential for best execution and price improvement with limiting information leakage,” said Husveth.
The new functionality allows institutional clients to submit a portfolio trade to multiple liquidity providers simultaneously. Clients choose the number of liquidity providers for each trade, which allows them to balance the potential for price improvement and limiting information leakage. In addition, clients can include both buy and sell orders for individual bonds within the same portfolio trade.
“We’ve gone from zero to more than $24bn in portfolio trades on Tradeweb in only nine months, so clearly our participants are growing increasingly confident in using the protocol to support their trading and investment strategies,” added Husveth.
Conlin said on her blog that electronic portfolio trading is only in its infancy but has the potential to span assets and currencies.
“In time, portfolio trading specialists at banks could price corporate bonds, government bonds, ETFs and derivative products all in one package trade,” she said.
From this month, clients can execute multi-asset packages on Tradeweb, which streamline the simultaneous execution of interest rate swaps, inflation swaps and government bonds in a single transaction.