(Updates with more details.)
LONDON (Dow Jones)--MarketAxess, the electronic bond trading system, plans to allow European investors on the platform to start trading with each other for the first time by the middle of this year, Rick McVey, chief executive of MarketAxess said in a recent interview with Dow Jones Newswires.
"We're talking to our key clients about following this path in Europe as well," said McVey. "Over the last nine months we've reshaped the way our business and our trading system works to address the shortcomings in liquidity in today's credit markets."
"The buyside is trying to manage as many fixed income assets with far less liquidity available to them from the dealer community," said McVey.
The move reflects the fact that banks are becoming less willing to act as market-makers in the bond markets, which involves them committing to buy and sell to customers and, therefore, to take bonds on to their balance sheets.
Most banks have reduced the amount of balance sheet that they will commit to market-making as they try to conserve capital after making writedowns on toxic assets. As a result, they have become increasingly willing to act simply as brokers, matching up investors in the markets.
Traditionally, MarketAxess allows investors to electronically signal to certain banks they want to execute a trade in any of a range of agency and corporate bonds. In October, however, the platform introduced a facility, known as Market Lists, to allow investors in the U.S. to also signal that interest to each other.
MarketAxess' European customers can already use Market Lists to trade U.S. high-grade corporate bonds with U.S. investors. The company now expects to allow European investors to trade sterling-denominated bonds with each other in late April and floating-rate notes and euro-denominated issues by midyear. Banks aren't being completely left out of these trades between investors, however, because they have to be routed through banks which then charge a fee for processing the trades.
MarketAxess, like other electronic trading platforms, has had its trading volumes decline as dealers have pulled back from market-making and investors have shifted back to using telephone-based brokers to find counterparties.
The platform traded $19.67 billion worth of bonds in February, down from $32.27 billion a year earlier, before the financial crisis erupted.
MarketAxess has, however, started to adapt to the growing shift towards voice broking by introducing a telephone-based broking service in the U.S. which is designed to help investors who can't find counterparties using the automated system. The company plans to roll out a similar service in Europe.
"We started that in the U.S. about two months ago," said McVey. "We are doing everything possible to connect people electronically and failing that we have the execution services team to find matches in other ways."
With each bank committing less capital to market-making it will be important for all trading platforms to recruit more banks to act as dealers if they are going to offer a decent pool of liquidity.
MarketAxess is currently talking to around 10 new banks about becoming dealers on the platform in Europe and expects two of them to join during the next two to three weeks, according to Stephen Gallagher, head of MarketAxess Europe Ltd.
-By Adam Bradbery, Dow Jones Newswires; 44 20 7842 9305; adam.bradbery@dowjones.com
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(END) Dow Jones Newswires
March 24, 2009 13:35 ET (17:35 GMT) | 
