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MarketAxess Boosts CDS Transparency with Real-Time Indicative Quotes

Market structure changes in credit derivatives will be catalyst for e-trading.

With market structure changes coming to the credit derivatives market, MarketAxess Holdings took steps to significantly increase pre-trade transparency in credit default swaps that are traded over its electronic fixed-income platform. Less than two weeks ago, the electronic client to multi-dealer trading platform said it was integrating Markit Quotes, a real-time quote parsing service from financial information services provider Markit, which extracts indicative over-the-counter prices from electronic messages.

In the credit default swaps market, Richard McVey, CEO and chairman of the board, said in an interview, “Quotes have not been available. It’s been difficult to get any reliable source of real time data in CDS historically,” explained McVey. “As a result, the way that data exists is through parsing engines, which allow clients to aggregate all of the pricing runs that have been sent to them by dealers,” continued McVey.

Dealers will send their best CDS clients price runs throughout the day on both indices (Markit iTraxx and Markit CDX) and single-name CDS, and then the parsing engines efficiently aggregate those messages and project a picture on the best bid or offer to the client on their desktop, said McVey. However, this is not a broadly available source of data, he cautioned. “It is actually derived from the specific runs of data delivered to each client,” he said. These prices are not live and executable; rather they are high quality indications of where the dealers want to trade during the day, explained McVey.

Yet this is an improvement in the transparency of CDS trades for institutional clients and hedge funds. “The client has a picture in real time of the best bid or offer in CDS on the MarketAxess platform with a convenient ‘click-to-trade’ which launches trade inquiries into the dealer of choice,” related McVey. Clients can click any price in Markit Quotes and launch a pre-populated order screen within MarketAxess for any of the following instruments, CDS indices, CDS single-name corporates and sovereigns U.S. agency and corporate (high-grade and high-yield) bonds and emerging market bonds, (corporates and sovereigns).

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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