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November 2007

e-trading: Dealers hedge themselves

by Alex Chambers and Jethro Wookey

TradeWeb sells minority stake to nine banks, as LiquidityHub gets going.




In October, Thomson Financial finally revealed that nine dealer banks had bought a minority stake in its TradeWeb debt trading platform. The move, one of the worst-kept secrets in the trading technology sector (see The coming revolution in fixed income e-trading Euromoney, August 2007), gives strong signals about future likely distribution channels of fixed-income product. Furthermore, it bolsters TradeWeb’s position just as another dealer consortium – LiquidityHub – gets up and running. LiquidityHub started trading interest rate swaps late last month. Strictly speaking, it is not a trading platform; its purpose is to pool dealer liquidity in various fixed-income sectors. LiquidityHub has struck distribution deals with Bloomberg and Reuters.

"What this partnership does is it positions us to take the business forward in the context of technology’s growth in the financial services space" Lee Olesky, Thomson TradeWeb

Lee Olesky, Thomson TradeWeb
Lee Olesky, president of Thomson TradeWeb, says: "For TradeWeb, this positions us as a solution for multi-asset class trading. We started this business a little over 10 years ago – and we have been growing asset classes and customers at a fairly significant pace. What this partnership does is it positions us to take the business forward in the context of technology’s growth in the financial services space."

Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, Royal Bank of Scotland, and UBS are the banks that have bought back into TradeWeb. Their total investment is $280 million, of which $100 million is for product development. TradeWeb is thought to be worth approximately $1.5 billion. Thomson purchased the platform from a dealer consortium for $385 million in 2004. There was a $150 million incremental earn-out period that ends soon.

"What we have seen in the last 3.5 years is very significant growth in products and volumes," says Olesky. "Volumes have more than doubled and there has been significant regional growth, especially in Asia."

In addition to the fixed-income product offering, where TradeWeb’s traditional strengths lie – especially in government bond trading – the consortium is also buying into an enhanced equity offering. Thomson is including equity product AutEx, which provides equity indications of interest.

"We think we’re partnering with a world-class platform. It’s something our clients are using for transactions and this is a natural step in what JPMorgan is trying to do, offering clients more liquidity and transparency," says Michael Davie, head of fixed-income e-business at JPMorgan.

The marketplace in 2004 was very different. Customer and banks’ commitment to electronic trading was much more limited than it is today. There was lack of consistency in e-provision from a trading platform perspective – one practitioner Euromoney spoke to likened the then market to a patchwork quilt.

The reinvestment highlights how important e-trading has become to the dealers, as well as to the buy side. Dealers are happy to back more than one option in liquidity provision, especially if that involves them taking a liquidity stake.

Not only is TradeWeb very different in size to when it was sold by the banks – it enjoys nearly double the trading volumes it had before – the e-trading sector has been transformed too. Given the stakes involved, banks are keener than ever to have a say in how the markets develop.







I’m learning new tricks at the moment. For example, I have to spend the day with our private bankers in Mayfair, so I have hired a poodle and am practising walking it

One investment bank structurer on his way to explain to the private bank how to market some of their structured products

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