| Jim Toffey | ||||||
TradeWeb’s platform differs from Bondbook’s in that, rather than seeking to establish an exchange-like marketplace for bonds, it is a dealer-to-user system with 13 dealers represented. Accounting for some 85% to 90% of dealer-to-customer trading in US government securities – often seeing volumes of up to $15 billion a day – TradeWeb is the most successful internet bond dealership yet established.
TradeWeb’s aim is to mimic the way trades are done via the phone, employing an electronic platform to maximize speed, efficiency and cost savings. Users are able to submit bids to as many as five of the 13 dealers on the system simultaneously, meaning that traders can use the multiple-bid facility to ensure that the best prices are on offer. Unlike Bondbook, the system is not anonymous. Though this means that some of the crisis-time liquidity that Bondbook considers to be the main advantage of anonymous trading may be lost, the open platform should result in greater price competitiveness. Dealers must offer the best prices in order to get the business. Knowing who they are dealing with can often influence dealers’ flexibility on pricing.
Expansion plans
The system offers US treasuries and high-quality agency bonds. Jim Toffey, chief executive officer at TradeWeb, feels that these products offer the greatest liquidity – the chief requirement of traders. In the near future, TradeWeb is gearing up to offer commercial paper and mortgage-backed securities, widening its range of products and moving into less liquid areas. As Toffey says: “Institutional managers increasingly working in global currencies and markets will therefore ultimately want one platform on which to do their business. TradeWeb will be able to cover this. Simply, the more products we offer, the greater our versatility.”
Toffey is confident that TradeWeb’s decision to move into these areas, as well as its geographical expansion, will cement its position as a market leader in internet bond trading. “TradeWeb is working hard to increase its products and to develop a truly global footprint,” he says. “Our move into commercial paper will take the platform onto the next level. We will soon have the most flexible trading protocol out there. Anything our users want to do can be done as flexibly via our platform as it could be over the telephone.”
Even further expansion is likely, explains Toffey: “More products will come on line as the system develops – for example, commercial paper, discount notes – and this will happen in markets throughout the world. TradeWeb will be the first place where so many different things reside on the same platform.”
Prices displayed on the TradeWeb system are not 100% real time but rather indicative of the current level. The screen gives indications – by use of the appropriate arrow – of recent movements in prices and shows which dealers are involved in an issue’s market.
Once a buyer chooses an issue to invest in, he or she simply clicks on the offer price to generate a trade ticket. A trade may be submitted to up to five dealers, specifying the amount required and the price the buyer is prepared to accept. The user then sits back and lets the dealers respond.
When the prices come back, the buyer clicks on the price he is prepared to take, clicks in the confirmation box, and the deal is confirmed. The screen then displays the full details of the deal. All of the information generated is passed directly to the back-office and settlement systems at the time of confirmation, so there is no need for re-inputting of information by the traders or back-office staff. It is simple to keep track of the day’s trading by use of the trade blotter. There is also a recap page available to remind users of the details of the trade, and which also shows savings made between the price paid and the next best price that was bid. An agency-specific page lists the major agency offerings and spreads available at any given time.
TradeWeb’s figures are impressive. The company now has over 700 user agreements in place and between 1,500 and 2,000 traders using the system at any given time. Toffey says that the typical buy-side customer signed up with TradeWeb is doing around 80% of all trading via the system. He is hopeful that this will grow to as near the 100% mark as possible before long. In all, over $3 trillion worth of business has passed through the system, with the third trillion taking just four months to achieve – an indication of the rapid rate of expansion in the business.
“The more investors use the system, the more they want it,” Toffey says. He acknowledges that TradeWeb’s success is partly a result of good timing: “We were in the right place at the right time and now we are working hard to take full advantage of the opportunity that has come our way. We are constantly evolving the platform and are designing protocols and technology to Wt each product. A couple of years ago, people were thinking that there would be one platform for each product. Now users want to see one platform for as many products as possible.”
