Uniquely positioned
The firm’s expansion has given it a highly differentiated but relevant path to supporting more efficient capital markets. Liquidnet has been transformed from its origins as a buy-side to buy-side-only, equity trading platform into a multi-asset agency broker which reflects a truly diverse business within a capital markets giant.
This award, drawing on feedback from traders and capital markets participants reflected both the realised and potential change it is delivering in the market today.
Following the acquisition by TP ICAP Group, and as the firm has expanded into new sectors and reached out to new clients, one of the largest growth areas sits within its credit business where Liquidnet has not only brought its buy-side base with it, but now also reaches credit dealers and banks.
“From a buy-side perspective the feedback has been very positive,” says Mark Russell, global head of fixed income at Liquidnet. “Starting with our primary markets initiative, there’s still heightened desire in the market to solve the inefficiencies linked to the lack of electronification in primary markets. Buy-side clients are supportive of us wanting to solve that and have been supportive of our various initiatives from the automation of the new issues process to the ability to consume the new issues data and then form a deal shell and initiate an order from that. Our clients are sticking with us and supporting us as we continue to work to ultimately solve this issue in partnership with others.”
The firm’s most recent partnership in this space is with Bond Auction which reflects its wider support for open standards and interoperability with other firms, designed to counter the risk of a fragmented set of primary platforms, which buy-side traders are specifically trying to avoid.
“On the secondary market side, in the last two years, we’ve launched new issues trading which is the natural next step from primary issuance, creating an order book in the grey markets,” says Nichola Hunter, global head of sales and trading for fixed income at Liquidnet “We see continued support of our dark pool protocol from our clients, which underpins the majority of our activity and this year, we’ll be talking about our newest workflow, which is our pure dealer to client (D2C) workflow through the launch of our Targeted Axe protocol.”
The last ten years have seen teams in the electronic trading execution space increasingly focused on automation, becoming more technically aware and data literate.
“Standing by our principles of open architecture, we’ve stayed as neutral as possible in order to make progress, and the reason the buy side have stuck with us is that they understand the end goal of having open lanes rather than a fixed channel of how to work,” says Russell. “We have customers who want to automate their decisions by integrating their own data through Python scripts and others who want a regular API but there’s an understanding that opening it up and acting as a utility is the way that they want to go forward in the future.”
Aware of its unique position in the market, Liquidnet has sought to maintain its role in trading blocks of liquidity and supporting firms in areas that are more challenging to trade, which sets its business on a journey towards tackling the harder-to-trade parts of the liquidity spectrum.
“We’re not competing head-to-head with every other venue,” says Hunter. “We’re looking at harder to trade, block-size liquidity. We have a history of solving liquidity problems for our buy side clients and that has built a long history of trust from those firms, sweeping their orders into our environment. As we mature, we can assist with the seeking of liquidity further as a result of them trusting us to put their orders in our environment.”
The acquisition of Liquidnet in 2021 by TP ICAP, which had been previously focused on interdealer broking, means it has a solid community of both dedicated client-to-client (C2C) and dealer-to-dealer (D2D) trading. Finding ways to bridge the gap between those communities while supporting both.
“Historically, Liquidnet has been a client-to-client platform. Following the acquisition, we have started to create the workflows, order types, protocols, to support dealer-to-client trading,” Russell notes. “That is the value that the TP ICAP Group is bringing, the ability to reach the sell side into the Liquidnet ecosystem in a thoughtful way. We continue to assess how the credit markets are evolving, and introduce new workflows and protocols to support more frictionless trading, while remaining conscious of the dynamics between those communities.”
Bringing these elements of partnership, client-driven service and significant networks of trading firms together is allowing Liquidnet to build a suite of services that are invaluable to users.
“We’re working on a partnership with an analytics company to deliver their services in our front end and also available via our API for the buy side to consume,” says Hunter. “We are able to put services in front of people, without those third parties having to set up bilateral contracts with every buy-side firm, but they still have control. With NowCM and Bond Auction we offer a best of breed network with utility connectivity to everybody, wrapped within a regulatory framework, cutting the cost for fintechs to connect and the speed at which traders can access innovation.”
Its approach is also allowing it to address smaller parts of the very fragmented fixed income landscape by bringing them into a trading ecosystem that is not reliant upon singular innovations but a more holistic approach to growth.
“Driving real change in the fixed income markets is hard because, within a firm, changing the way it trades may meet resistance, or it may be a multi-year project,” says Russell. “If we enable change in our workflow, it feeds all the other systems that we’ve already been set up to work with. From our negotiation protocol we’re slowly introducing other ways of working. Nichola mentioned new issue trading, which is a click-to-trade order book, and which is a small piece of the market compared to other electronic markets, but we are enabling change in that area by fitting into the overall way of working.”
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