MarketAxess sees returns from new trading tools

The growing uptake of new trading capabilities launched in the last year began to filter through in fixed-income trading giant MarketAxess’s Q4 2023 results.

Most notably, revenues of $197 million, up 11% relative to the same quarter the previous year, were lifted by $7.6 million from newly acquired algo provider Pragma.

Meanwhile, the amount of portfolio trades executed using the company’s new trading platform, X-Pro, rose from 18% in Q3 to 30% in Q4. And automation suite Adaptive Auto-X also began to gain traction, moving out of the pilot phase with a total of 13 clients.

During the vendor’s Q4 earnings call on January 31, CEO Chris Concannon said there is more room for growth.

It's truly astounding when you see an individual trader, fresh out of college, trade over 240,000 tickets, just leveraging the technology

Chris Concannon, MarketAxess

“The disparity of use of automation is quite high in our market. … Our largest automation user is two times the next largest client. So from an assets under management perspective, we have not fully penetrated the automation suite across all our clients.”

Concannon added that MarketAxess’s largest trader in 2023, who was able to trade in such big volumes using automation tools, was only 26 years old.

“It's truly astounding when you see an individual trader, fresh out of college, trade over 240,000 tickets, just leveraging the technology. That's the power of this automation suite,” he said.

MarketAxess announced the $129 million acquisition of multi-asset algorithm provider Pragma in August 2023, with the deal closing in Q3. Gareth Coltman, global head of automation at MarketAxess, told WatersTechnology that the acquisition was intended “to build on what we’ve already started with Adaptive Auto-X, which is to develop more sophisticated, higher velocity automation tools for our platform.”

Pragma revenue is expected to grow in the mid-single digits in 2024.

X-Pro, MarketAxess’s new portfolio trading platform, has also seen growing uptake. Pre-trade analytics for portfolio trading, providing metrics such as tradability, are only available through X-Pro.

On the earnings call, Concannon explained that automating the smallest trades is now commonplace, and MarketAxess has an offering for automating larger trades (Adaptive Auto-X). The next step for automation, he added, will be to target mid-sized trades.

“While the history of electronification would indicate that the largest, most complicated block trades would be the last to adopt electronic solutions, our market has jumped right to the largest and most complicated trades: the portfolio trade. What is left in the middle is trade sizes of $5 million or greater, which is the target market for the rollout of X-Pro,” he said.

Concannon added that AI will be a crucial tool to help clients manage these tricky trades in the future.

“In this environment, hiring more traders is not the answer. To help our clients manage protocol and counterparty selection for larger sized trades, we have launched Tradability and AI Dealer Select. Tradability helps determine depth of market, while AI Dealer Select helps clients determine the right dealers to engage,” Concannon said.

“We think there's more to do and a huge opportunity around AI,” he added.