MarketAxess Develops REXIQTM: A Proprietary Approach to Fixed-Income Transaction Cost Analysis
NEW YORK--(BUSINESS WIRE)--Mar. 30, 2012--
MarketAxess Holdings Inc. (Nasdaq: MKTX), the operator of a leading
electronic trading platform for U.S. and European high-grade corporate
bonds, emerging markets bonds and other types of fixed-income
securities, today announced the introduction of
REXIQ™: Reducing
Execution Costs, a new proprietary approach to analyzing trading costs
in the fixed-income markets that has been developed by
MarketAxess
Research.
In highly liquid markets such as equities, a number of sophisticated
approaches are widely accepted to measure the main components of trading
costs – known as transaction cost analysis (TCA) – and thereby help
support customers’ best execution requirements. REXIQ is the
first formal methodology for measuring transaction costs in the less
liquid corporate bond markets.
Separately, new independent academic research from the University of
California, Berkeley, shows that there are material reductions in
trading costs for users of electronic trading tools that source
liquidity from a greater number of counterparties*.
REXIQ Methodology
MarketAxess Research looked at the embedded costs of trading, consisting
of the dealer mark-up plus any fee associated with executing the trade.
It was therefore possible to determine the cost of execution by
comparing the electronically executed trade to a ‘prevailing market
price’ using corporate bond market data from FINRA’s TRACE.
For its initial analysis, MarketAxess took a sample of 900,000
TRACE-reported trades over a 24-month period from January 2009 through
December 2010. From these, MarketAxess identified 150,000 trades for
which it could establish a prevailing market price and for which it was
able to compare electronic trades with a sufficient number of TRACE
prints.
Findings
MarketAxess’ research demonstrated the statistically and economically
significant cost savings afforded to the end user by electronic trading
across all trade size buckets and maturities in the fixed-income credit
markets. MarketAxess was able to estimate, at a 95% confidence level,
that the average cost savings of electronic execution for all trades
during the period analyzed was 5.2 bps, compared to the calculated
Volume Weighted Average Spread (VWAS).
Rick McVey, Chairman and CEO of MarketAxess, said: “Forthcoming
regulatory changes are placing increased scrutiny on transparency of
execution in the over-the-counter markets. Electronic trading helps
address the stated goals of this regulation – to create more open,
transparent and competitive OTC markets – and drive trading
efficiencies. REXIQ can deliver insight into the corporate bond
market to help fund managers meet fiduciary responsibilities. Our
research validates the value of e-trading as a tool in achieving
transaction cost savings and improved portfolio returns. Using this
methodology, we are providing our institutional investor clients with
regular, robust analysis of their execution costs to support their best
execution requirements.”
Alex Sedgwick, Head of MarketAxess Research, said: “The advent of
FINRA’s TRACE reporting combined with greater adoption of electronic
trading for fixed-income has allowed us to develop an objective approach
to examine trading costs in new and compelling ways. Using this data,
MarketAxess Research developed the REXIQ methodology – a credible
methodology for demonstrable transaction cost analysis, formalizing the
value of fixed-income TCA in support of best execution.”
An academic paper written by Terrence Hendershott and Ananth Madhavan
from the University of California, Berkeley arrives at similar
conclusions. The authors note: “We highlight the value of competition
among dealers and show that increased (auction) participation sharply
reduces costs. To the extent that technology will continue to reduce
search costs, these results support the view that even traditional
bastions of over-the-counter trading will face strong competition from
auction type markets. More practically, the results confirm the value to
traders and investors from sourcing liquidity widely and using tools to
optimally select a venue. We show that these gains are significant and
can materially influence realized investment returns.”
For more information on REXIQ, please visit: http://www.marketaxess.com/trading/reducing-execution-costs.php
*For more information on the University of California, Berkeley study,
please see: Hendershott, Terrence and Madhavan, Ananth, Click or Call?
Auction Versus Search in the Over-the-Counter Market (November 17,
2011). Available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1961350.
About MarketAxess Research
MarketAxess Research works with institutional buy-side clients to
deliver custom research and analysis to better inform their electronic
fixed-income trading and execution strategy. Leveraging its wealth of
fixed-income experience, MarketAxess Research focuses on many aspects of
credit trading including trade cost analysis, fixed-income trading
flows, and portfolio pricing and fixed-income exchange-traded fund (ETF)
pricing. It has developed a proprietary approach called REXIQ to
calculate execution costs by comparing electronically executed trades to
prevailing market prices, allowing clients to calculate the portfolio
performance improvement due to e-trading.
For more information please see: http://www.marketaxess.com/data/marketaxess-research.php
About MarketAxess
MarketAxess operates a leading electronic trading platform that enables
investment industry professionals to efficiently trade corporate bonds
and other types of fixed-income instruments. MarketAxess’ patented
trading technology allows institutional investor clients to request
competitive, executable bids or offers from multiple broker-dealers
simultaneously, and to execute trades with the broker-dealer of their
choice. Over 850 institutional investors are active users of the
MarketAxess trading platform, accessing the global liquidity provided by
MarketAxess’ 87 broker-dealer clients in U.S. high-grade corporate
bonds, European bonds, high yield and emerging markets bonds, agency
bonds, asset-backed and preferred securities and credit default swaps.
MarketAxess also offers a number of trading-related products and
services, including: market data to assist clients with trading
decisions; connectivity solutions that facilitate straight-through
processing; technology services to optimize trading environments; and
execution services for exchange-traded fund managers and other clients.
MarketAxess maintains its headquarters in New York and has offices in
London, Chicago, Salt Lake City, Hong Kong and Singapore. For more
information, please visit www.marketaxess.com.
Source: MarketAxess Holdings Inc.
Media – US
MarketAxess
Florencia Panizza,
+1-212-813-6029
fpanizza@marketaxess.com
or
Diana
Bhaktul, +1-212-813-6354
dbhaktul@marketaxess.com
or
Media
– UK
MHPC
Charlie Prichard, +44 (20) 3128-8554
marketaxess@mhpc.com