Axe Trading Targets the Buy Side with New EMS

The firm has built an execution management system (EMS) targeted at asset managers active in the fixed-income markets, which allows them to become price makers.

Mark Watters, director at Axe Trading, tells WatersTechnology, that the solution was built from the ground up. “It was important to build it without preconceptions of how an EMS for the buy side should look like,” he says. “We integrated some components from our sell-side product so that investment managers can leverage that technology as well.”

Watters explains that the EMSs for equities trading were built to aggregate trades from different markets, where users manage their workflow and measure trading performance across many venues from a single application. This new platform takes that philosophy and runs with it for the buy side, instead.

“Most fixed-income traders will be trading by voice as well as electronically on multiple fixed-income platforms, such as MarketAxess and Bloomberg, and often you’ll find they have had to integrate their own order management system to one or more of these fixed-income platforms,” he says. “By the time they have done that, they’ve locked in their trading application to those workflows.”

For this reason, he adds, asset managers often don’t have a measurable way to decide which one is the best venue for their needs—for example, which venue or counterparty is delivering better hit ratios for a particular security, which venue costs the least, or which has the highest probability of execution.

Axe’s EMS is also enabling fixed income buy-side firms to become price makers, by covering the entire trading workflow. Watters says that this is reflective of a structural change that’s been occurring for years in the market, driven by a withdrawal of sell-side firms as market-makers, largely thanks to rules around risk and regulatory capital measured against inventories of risky assets.

“The buy side is becoming more involved in liquidity provision, which is not surprising given that buy-side firms are reputed to hold something like 90 percent of bond inventory at the present time,” he says. “We give integral support for buy side firms to become price makers as well as price takers, at any point during their trading process, where it may be appropriate for the trade,”

The offering also responds to best execution requirements set by the revised Markets in Financial Instruments Directive, as it can aggregate liquidity on a pre-trade basis.

“To achieve best execution, you have to be able to aggregate email quotes, platform prices, exchange prices, all sorts of data that will help you to form a picture of the market before you trade,” Watters says. “AxeTrader’s pricing engine enables users to further synthesize and evaluate that data to work out what they think fair value is for their securities.”