AxessPoint: Quantifying the efficiency opportunity for automation

AxessPoint Quantifying the efficiency opportunity for automation

Highlights

  • Auto-X RFQ has seen steady growth as a tool for traders and now encompasses 17% of all trade tickets on MarketAxess.
  • In Q2 2021, traders saved approximately 131 seconds per inquiry when successfully trading via Auto-X RFQ, totaling over 3600 hours overall.

Growth of automation on MarketAxess

One of the larger areas of growth in bond markets in recent years has been the emergence of tools for automating workflows. A 2020 Greenwich Associates report determined that 61% of market participants have already begun using or plan to soon employ automation in some form. On the MarketAxess platform, Auto-X RFQ allows clients to automate inquiry orders based on pre-defined tolerance settings around an inquiry’s size, liquidity, and quality of responses. If all limits are met, then a trade will automatically occur.

Auto-X RFQ has seen significant adoption over the past 2 years (see below) as trading desks seek to improve efficiency. Q2 2021 saw a YOY growth in completed orders of 50%. The rolling 6 quarters from the start of 2020 onwards have all seen greater than $30B of automated volume, with Q2 2021 setting a record as the first quarter over $40B. Nearly 100 unique clients now take advantage of automation functionality on the system.

Quarterly global Auto-X trade volume and count

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Time saved by utilizing Auto-X RFQ

An exercise in measuring the value of automation is putting a tangible figure on what traders have gained by shifting their flows to Auto-X RFQ. In Q2 2021, the median length of time between the bin of responses becoming available to view and the trader choosing to accept on traded orders was 130.8 seconds. In addition, on a traditional high-touch RFQ it takes a trader between 2 and 5 clicks to navigate the order screen. In this time, they have to evaluate the stack of responses and potential counterparties, confirm spot type, and check calculated price/yield/spread.

Over the same period, there were 219,000 fully automated trades completed on MarketAxess. Even if we assume that a trader isn’t actively evaluating their options for the full length of the gap, we can approximate that a trader spends 60 seconds to validate all of the available data. Using this conservative estimate, traders saved over 3600 hours and 410,000 clicks in the three-month period. That adds up to roughly 400 trading days of additional opportunity that were opened up through parameter-based automated trading.

These numbers are striking and this is likely just the beginning of the shift toward automation. Even accounting for the positives listed above, trades sent through Auto-X RFQ only accounted for 17% of all trade tickets on MarketAxess in Q2 2021, up from 11% in Q2 2020.

We expect this number to continue to rise through client adoption and expansion across markets. US High Grade is a market that has seen substantial adoption; 80% of all automated RFQ trades were in USHG in 2020. Other markets have started to make progress with share of US High Grade falling to 75%. As clients become increasingly confident in the functionality and integrate the functionality across other markets, the path toward greater automation is clear given the efficiency gains.
 

Auto-X RFQ on MarketAxess

Auto-X RFQ is an execution tool for corporate bond trading on MarketAxess where a trader specifies criteria for a given inquiry’s size, liquidity and level. Auto-X RFQ evaluates these criteria against bids and offers, checks for outlier prices, and when all parameters are met, the system automatically executes the transaction.


For questions or follow-up, email our data scientists at research@marketaxess.com.