Tradeweb
Nigel de Jong
10 January 2012
Following Tradeweb’s launch of a European repo market platform last March, director of the firm’s money markets business, Nigel de Jong, speaks to SLT about how the new platform has been received by the market
Image: Shutterstock
SLT: Tell me a little about Tradeweb?
Nigel de Jong: Tradeweb’s core focus in Europe is the customer-to-dealer market, as opposed to the inter-dealer market. We provide more than 20 electronic trading platforms for customers worldwide, trading in government bonds, credit, derivatives and money markets. Tradeweb has established a strong presence in many of these markets over several years and the new repo market is complementary to these markets. It’s also a key fit with a number of our existing customers.
SLT: With Tradeweb’s new European repo market focusing on the bond side, is now a good time to be launching it - do your customers have time to implement it?
de Jong: Buy-side institutions have driven the response from Tradeweb to launch a new electronic market for repo. We need to see the customer demand before developing any new markets. In fact, we work closely with both buy-side and sell-side institutions in order to build and implement any new trading platforms we develop.
SLT: How did the development start?
de Jong: The demand for the European repo platform goes back to 2007-08. What we were seeing at the beginning of the credit crunch was a move from unsecured to secured lending. We were talking to a number of institutional customers who may have been lending cash before on an unsecured basis, and who were now looking to translate that business into the secured area - such as short term bills, which we already offered, or repo, which we have now brought in. It was a natural progression for our existing money market business, where we have customer deposits, CDs and ECP. There’s a lot of synergy with the types of customers who are doing that type of business who are moving their business more towards repo.
So is it a good time to be introducing a new venue for trading repo? Well, as ever, customers are focused on reducing credit risk. Anything that helps improve the efficiency of the repo market must therefore be of benefit to customers.
SLT: How did the development process work?
de Jong: We spent a long time with our customers and with our dealers asking for and understanding their requirements. Obviously the repo market in Europe is quite fragmented in terms of the types of instruments and the ways people transact their business on a regional basis. Funds in London may have different styles or ways of operating in the market to those based in say Paris or Frankfurt. So we used our existing contacts, people who have expressed interest in having an electronic repo offering, to check the way that they trade and operate so we could formulate our responses to building the platform. And that’s why we’ve come up with quite a wide offering when it comes to the product, rather than a narrow one that just looks at a segment of the repo market. We wanted to offer a relevant product to a wide customer base.
SLT: Was there any resistance from firms who value the personal relationships over electronic trading?
de Jong: I think there is focus on creating efficiencies. There will always be personal relationships and I think this new trading venue offers a key advantage in that respect. As a time-saving tool, traders and dealers are enabled to develop even closer relationships - if you spend half an hour looking at your repo trades, that’s half an hour that could have been spent talking to your clients about what else they want to do. So I think it can be seen as quite the reverse, it gives you more time to develop relationships.
SLT: So it can be a hybrid, with the benefits of electronic trading and relationship building?
de Jong: We haven’t tried to change the market, we’ve looked at the way people trade and looked at their workflows. And we’ve tried to mirror those workflows and protocols. We don’t take away anything the market does today, we’ve just translated it from a phone or a message into an electronic platform that then gives the benefits of STP and faster execution times. It puts all the processes in one place and at one time.
SLT: How far down the trade process does the platform operate?
de Jong: We are replacing the execution part of the business. We are not directly sending instructions to a settlement centre. But what can happen is that the message that is translated from Tradeweb to those companies’ back office systems or trading platforms will in turn be passed on to the settlement centre.
SLT: Is it your existing clients that will be using this platform, or are you expecting new clients to come on board specifically for it?
de Jong: During the initial stages when we were looking at building the platform it was key to understand the dealer-to-customer relationships, their workflows and so on, in order to build it. But our experience has shown that we now have a mix of customers, some who were existing Tradeweb clients and some who are new to Tradeweb.
SLT: Are there issues around regulation that you feel this new platform can solve, or is it simply a case of institutions wanting to improve their internal processes?
de Jong: Repo touches many different markets and there is potentially a broad field of regulatory issues. We attend meetings such as those held by ICMA and we are always cognisant of the debates going on from a regulatory point of view. Does Tradeweb European Repo address any regulatory concerns? I don’t think it needs to at the moment, but it’s a fluid topic and one we will continue to stay informed about for all related markets.
SLT: What does the process of implementation involve?
de Jong: From an implementation point of view, our customers across the globe already have our software on their desktops, so there’s no additional requirement to implement new software - access to the platform can very simply be enabled. For new customers, installation is a relatively straightforward process as Tradeweb is a thin client application that connects over the internet. Of course, what they do with the post-trade information is the next step and this applies both on the customer and the dealer side - once the trade is done, what is the flow of the trade and how do they use the information they get from our feeds. Many clients are used to receiving post-trade messages in a certain way from Tradeweb and repo becomes an extension of those messages we send.
SLT: But it’s people on the repo desks who will now be using this system rather than your existing users?
de Jong: No, there is a mixture. Some of our customers solely deal with repo, but more often they will deal with a variety of products. It may be a customer’s short end money market desk dealing in repo but also in products such as short-term bills, FRNs, tail-end bonds, etc. In many cases, repo will be an addition to the markets they access on the platform.
SLT: Has the dealer response been similar to the client response? Are they taking the platform because their clients are asking them to, or do they see the benefits independently?
de Jong: We see both. We see both the requests from clients and we also see a response from dealers as an efficiency tool to bring this business closer in alignment with other markets where they already have electronic systems with the customer side.
SLT: Is there a particular geographical spread of clients?
de Jong: It’s difficult to pinpoint. We are fairly pan-European on both the customer and dealer side. We don’t have too much response from the emerging markets yet, it’s a much smaller space, and this is a relatively young platform so we need to get gravity in the larger markets first.
SLT: Has the platform already reached the scale to become useful to all European markets?
de Jong: I think to some degree, yes. It’s already of great use to some people and it’s becoming more relevant as we add dealers. We need to remember that customers have relationships with certain dealers and when those dealers commit and subsequently go live then it becomes more relevant. There is a continuous process - implementing dealers, and encouraging the customer growth.
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