Jim Toffey, managing director and co-founder of LTX, said the technology deployed by the artificial intelligence-based corporate bond trading platform is becoming increasingly valuable in a rising rate environment. .
In April 2022, Broadridge Financial Solutions, the fintech provider, formed a new buy-side advisory group for LTX, the AI-powered electronic trading platform it launched in June 2020. The advisory group consists of senior credit traders at LTX corporate clients including AllianceBernstein, American Century Investments, BlackRock, Invesco, MetLife Investment Management, PIMCO and PineBridge Investments.
Tom McClintic, Head of High Yield and Emerging Markets at MetLife Investment Management, said in a statement: “Best execution is a priority, especially in today’s liquidity conditions. LTX is innovating with data science and a new trading protocol, and look forward to advising on the continued development of the platform.
LTX set out to work with the buy side about three years ago to find a solution that could improve price discovery and best execution for the part of the market that the RFQ could not reach. Toffey said the ability to aggregate liquidity was underlined by the buy side.
In 1997, Toffey founded the electronic marketplace Tradeweb Markets and introduced RFQ orders to the marketplace for rates and credit. He said RFQ has done a good job with smaller deals ranging from $1 million to $2 million in rates and credit, but the majority of fixed income deals are still done over the phone.
“Creating a protocol that allows multiple buyers to access a larger block of bonds is an important fundamental capability of the market structure,” Toffey said. “The second thing is that you need a mechanism around price discovery that price demand doesn’t allow.”
For example, if there are four tied participants in a prize request, it is not possible to break the tie. LTX combines artificial intelligence with RFX, a next-generation protocol, to help aggregate liquidity and improve efficiency and execution for corporate bond market participants.
“It reminds me of when RFQ was introduced to the market years ago and everyone was saying it was really natural and intuitive and I can’t believe no one has done it before,” he added. . “That’s what people say when they see this.”
Latest LTX White Paper Explains How We Use AI to Effectively Discover Liquidity in the U.S. Corporate Bond Market and Help Our Clients #TradeSmarter. #Capital markets https://t.co/DsCQt3gGQZ pic.twitter.com/Yefcz8g4Lg
— LTX, a Broadridge Company (@LTXtrading) December 10, 2021
Toffey said more than 20 dealers and 50 asset managers have joined the LTX platform and he expects that number to double. The number of RFX sessions has steadily increased since January 2021, and the total amount of bonds offered on the platform is over $4 billion.
“The the buy side has made it clear that they don’t want to create another platform that disintermediates dealers and Broadridge is in a unique position as we are the back office for many banks and can enhance the role we already have,” said added Caramel. “Our theme is to trade smarter.”
AI allows dealers to find natural counterparties for a trade by providing a ranking and profile in seconds. Dealerships can authorize Broadridge to use their data for AI to provide these recommendations to their salespeople and merchants. The technology also provides a real-time liquidity score to help participants gauge the likelihood of competing with a trade.
“The innovation that got the buy side excited is that we’re creating an anonymized cloud that flags whether there’s a counterparty natural interest in a bond,” Toffey added. “It’s about understanding liquidity, helping dealers find and identify natural counterparties, and then creating a much more flexible protocol to allow parties to transact together and we’re rolling it out now.”
For example, in March of this year, LTX was integrated into Charles River’s Order and Fulfillment Management System (OEMS).
“Enabling buyers and sellers to trade smarter is a very important undertaking and building the network takes a lot of time, effort and investment,” Toffey said. “You need a large pool of cash that we have built and invested in.”
According to a survey by Coalition Greenwich, in credit markets, functionality enabling workflow automation was second most important after order management functionality.
The consultancy said in a report: “While the focus has been on digitizing the actual execution of fixed income products over the past decade, the 2020s show a strong focus on digitizing. This means that even personalized and illiquid products have a path to automation – a strict contract with e-commerce expectations, where many have called these products “impossible” to electronicize.
Lack of integration with downstream business processes, as well as data aggregation and standardization, cause the most frustration among survey respondents.