Those behind electronification
The growth in electronic credit trading is no accident. For two decades, regulators, investors, and tech-savvy disruptors encouraged electronic credit trading to create more stability, transparency, liquidity, and access. Progress, though, was erratic, as periods of volatility often drove investors back to familiar traditional voice trading. COVID on the other hand, while similarly disruptive, was a turning point in the electronification evolution, helping fast-track the adoption of electronic trading through various functionalities and protocols. In 2021, even as the runaway pace of U.S. corporate bond issuance normalized and traders started returning to their desks, increased reliance on electronic trading platforms did not slow: average daily electronic trading volumes in U.S. credit climbed to $11.5 billion by March 2021.
Some of those who have contributed to electronification’s success, in fact, simply set out to democratize historically institutional-focused credit investing. In the process, they helped to create the conditions that well-functioning markets crave – better liquidity, price transparency, and efficiency. Scale and pricing acumen have come to bear for the benefit of the markets.
Consider the use of real-time composite pricing. Now, instead of using single-dealer quotes or pricing service end-of-day runs to mark illiquid bonds, market participants can use multiple pricing sources, modeling techniques, and market indicators to derive a more accurate and up-to-date price on a bond. With this added level of pricing efficiency and dependability, market participants have grown more confident with electronic trading, utilizing smart machine learning models and AI to price entire portfolios of corporate bonds based off of reference prices such as Tradeweb AiPrice.
The need for more reliable pricing extends to other areas such as exchange-traded funds (ETFs), which are priced based on these underlying bonds. Tradeweb’s recently-launched market data service leverages AiPrice to calculate real time Indicative Net Asset Values (iNAVs) for ETFs based on executable streaming bond prices. iNAVs provide intraday indications of an ETF’s value based on the market price of its constituents, ultimately helping boost trading confidence in the ETF and underlying credit markets.