AxessPoint: Dealer RFQ Cost Savings via Open Trading®

Highlights

• Dealer RFQs on MarketAxess have access to a larger liquidity pool than traditional inter-dealer networks as 43% of trades are with non-dealer counterparties.
• Dealer Open Trading cost savings grew to 7.6bps (US IG), $0.64 (US HY), $0.24 (US EM), €0.23 per bond for Q3 2020.

An expanded liquidity pool

Dealer RFQ includes the traditional inter-dealer counterparty network, of course, but simultaneously includes our all-to-all Open Trading network with non-dealer counterparties globally. The liquidity provision from Open Trading is unique and significantly additive to a dealer’s outcome.

Dealer RFQs won by non-dealers

The chart above illustrates how often the Open Trading network acts as a liquidity provider. For example, the diversity of participants has helped increase its share from 28% to 50% in 2020 for US IG.

Savings during and post-crisis

In the previous AxessPoint, ‘Estimating pre-trade Open Trading cost savings for liquidity takers’, we highlighted the savings investor clients realize through Open Trading, these savings also extend to Dealer RFQs submitted through Open Trading as well. 

Average monthly dealer OTCS

Source: MarketAxess

Dealer OTCS followed a similar trend as their investor client counterparts, namely as market volatility increased, Dealer OTCS increases in step. US IG grew from 5bps (Feb) to almost 17bps (March), a 260% increase. US HY increased from 58 cents to 102 cents, 75% increase.  EM USD and EUR IG also saw significant increases. Additionally, Dealer OTCS remains elevated in every market against the start of the year, with a 38% average increase.

Dealer Open Trading Cost Savings (Dealer OTCS) 

Measured per bond, Dealer Open Trading Cost Savings is the price differential (improvement) between the winning Open Trading response with a non-dealer and the best dealer response. This represents the benefit gained by a Dealer through Open Trading versus a traditional inter-dealer broker network. 

For questions or follow-up, email our data scientists at info@marketaxessfinance.com.