For a company just launching in the buy-side market, AxeTrading’s award of Buy-side Trading System of the Year stands as an impressive testament to its foresight - it started developing its fixed income EMS three years ago - and innovative approach to the fixed income market.
The firm has grown out of its base of leading regional /tier two banks and into the Buy-side with a suite of products designed to capitalise on the rapid evolution of the fixed income markets since the financial crisis.
AxeTrading was founded in 2009 by Dinos Daborn and Ralf Henke. Daborn had been at Cantor when it launched eSpeed and subsequent stints at Bloomberg and Citi had convinced him that the fixed income market was changing in several fundamental ways.
“I could see in the early 2000s that the fixed income markets were going electronic and you either embraced that or you were left behind,” he said.
“By 2009 it was clear that the structure of the market was also changing. Before the financial crisis the fixed income market was in the hands of a small number of international banks. Whether firms wanted US treasuries or South African government bonds, they could rely on a handful of counterparties.”
In the wake of the crisis and the imposition of more stringent capital requirements on banks, many were forced to pull out of non-core, peripheral markets and were less able to warehouse risk on their balance sheets.
“The buyside still wanted to trade peripheral market bonds, but for the first time had to engage with local banks to trade,” said Daborn.
“These banks were therefore starting to get interest from international buyside firms but they didn’t have the technology or the salesforce to service those clients.”
AxeTrading sought to capitalise on the opportunity presented by this emerging trend and launched a fixed income software platform to support tier two/ regional banks seeking to handle international business and get their pricing out to the global market.
As many banks moved to an agency model matching buyers and sellers, the firm developed software for them to create internal order books to aggregate client orders in one view across both electronic and voice.
An EMS for fixed income
It was from this position offering fixed income software to both the regional banks seeking to get visibility in the international markets and the larger banks that needed to aggregate orders that AxeTrading began its journey into the buy-side.
Again for Daborn, it was in response to a prevailing trend in the market.
“We saw about three years ago that the continuing evolution of the market and the pressures on banks’ balance sheets meant that the buyside were increasingly the most significant holders of bonds,” he said.
“At the same time there was a proliferation of trading venues including new central limit order books, so a buy-side trader looking to execute trades was having to connect into many different platforms and make sense of numerous disparate data sets.”
From this technical insight, AxeTrading built its buyside Fixed Income Execution Management System. Designed to sit on top of the buyside’s Order Management System, the software provides buyside trading desks with a holistic view of the fixed income markets, integrating internal systems with multiple venues (over-the-counter, exchanges, multilateral trading venues, organised trading venues and swap execution facilities), and data sources into a single application to help facilitate trade execution.
An EMS was a familiar concept in the equities markets, but is still almost unknown to buyside fixed income trading desks.
“What we have built in its most simple form is an aggregator,” said Daborn. “All the orders come in to the EMS through the OMS and the EMS is connected to all the venues that buyside firm wants to be connected to.
“We also pull-in all the client’s market data from their various sources including runs messages, axes, broker and exchange data. We normalise the information and display all the market data in one window, we enable clients to grade that market data and help identify the optimum trading strategy.”
AxeTrading’s EMS is likely to be a key tool for buyside firms that are required to prove best execution post Mifid II. Firms will need an audit trail to validate their decisions on where to trade and access to all available data will be crucial to meeting the mandate.
AxeTrading has its sights set on exponential growth following a €2m investment from Mark Beeston’s Illuminate Financial fund.
It opened an office in Sydney in October, and will soon build out the sales teams in Singapore and the US. The firm has more than doubled its staff in the last 12 months.
“Our focus has been, and always will be, pressing at the forefront of fixed income e-trading. In today’s world, firms are coming to realise the pitfalls of a multi-asset system, and are increasingly understanding they can pick the best system for each asset class. And that is what we offer for fixed income.”
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