MarketAxess is available within Trader Workstation, specifically for investors seeking liquidity in high yield corporate bonds, who want to buy or sell larger bond volumes. By linking to MarketAxess clients may enter requests for quotes on an initial 3,000 individual CUSIPs, known in the bond market as RFQs. During this event we will discuss the RFQ model and the traditional central limit order book (or CLOB) and why RFQs are frequently best suited for larger sized trades.
MarketAxess is a bond venue. When clients enter a CUSIP in Trader Workstation, by default they would see SMART as the venue for routing orders to multiple electronic venues.
If a client enters a CUSIP listed on MarketAxess, they may now choose MarketAxess as the venue. When the bond populates in TWS the client may right-click and select RFQ and then populate a basic field before submitting the request. The minimum order size is 50 bonds or $50,000 bonds face value.
Access to MarketAxess is open to all IBKR clients with trading permission for US Bond bundle via Client Portal. However, during this event we will discuss the extent of its appeal and who would be using MarketAxess and how it should be used.
When you look at any bond in TWS it may have a bid and an offer, or it may only have one side displayed. On many occasions, bonds simply don't have quotes. That's because many bonds trade infrequently and some market makers may not want to actively quote 2 sided markets.
Where bonds are active, market makers can easily create an algorithm to display a one or two-sided spread relative to the equivalent maturity US treasury product. Moreover, market makers generally will price liquid bonds, which tend to be high quality. This is where a CLOB works well as competing bids and offers allow investors to buy and sell easily through a highly visible price discovery process. Market makers are willing to add liquidity because they can conveniently hedge bought or sold bonds using the government securities market since the spread or yield gap between the two bonds is relatively stable.
However, high yield bonds, often known as junk, may not appeal to market makers, which is why the RFQ model works best. For high yield bonds, investors may not be able to readily locate a willing buyer or seller for a specific bond for several days or weeks. Illiquid conditions can be a standard part of the bond market for many issues, despite the appeal of higher yields. Don't forget that higher yields may carry higher risks. The advantage of the RFQ model is that it allows market makers to quickly determine whether they are interested in a specific bond. And don't forget that the client is showing which side of the market they are on. If interested, market makers can show their bid or offer back to the client only. And the quote is for a known quantity and it lasts for a specific period. The market maker knows exactly what he is letting himself in for by returning a price when an RFQ is made.
By entering a CUSIP or searching for a specific corporate bond, the contract selector display will indicate whether RFQ is available at MarketAxess. In this case the bond is available on both SMART and MarketAxess and the user may select all and click OK to close the dialogue box. Users will never see a price on the screen in the line displaying the MarketAxess item. But for the SMART bond, you may see market data.
The purpose of the MarketAxess display is to allow you to route the RFQ via its platform. That RFQ is subsequently displayed to competing market makers who can decide whether to return a price.
To create the RFQ, right click on the MarketAxess line and select Submit RFQ. A dialogue box will appear. Note that it states the Exchange as MarketAxess beneath the symbol for the bond. It is of course possible to submit RFQs for any bond this way to Interactive brokers. In that event, the Exchange would display SMART. Enter the number of bonds into the Quantity input field and click on Buy or Sell before clicking on the OK button. At this point, your request is being looked at by multiple market makers.
When a market maker enters a price back to you it will display beneath the RFQ request line in TWS. After xx seconds it will disappear. However, should a better quote be returned the price will update in the same cell such that you will only ever see a single price and not a series of competing bids. Note that the price may be an improvement on the NBBO, if there is one displayed. That is because the market maker who replied to you is not necessarily the same one displaying the live price quote. That is the market maker's expression of interest in the volume of bonds that the user wants to trade. In such an event, you may always continue with your order using the regular Smart routed method.
Should you wish to trade with the dealer, click on the price to enter your order. Here you will not be able to change either the price, which the dealer has already provided to you or the quantity, which you already specified to the dealer. Submit the order.
And while there is no limit on using RFQs, its purpose is to find liquidity and to trade on it. Should an account holder make an unreasonable number of requests yet fail to enter orders, IBKR's client service will probably reach out to explain the limitations of its use.
Remember, if you are trying to buy or sell at a specific price, rather than asking repeatedly, you should simply enter a limit order specifying your price and adjust the time in force if necessary.
Interactive Brokers launched a bond trading desk to help source liquidity for larger bond trades where the electronic liquidity is inadequate. While submitting an RFQ will generally return a bid or an offer, IB clients can contact the bond desk to work non-marketable (limit) orders. For example, suppose a bond had a market of 95 bid 96 offer with size of 25k x 25k. If an IB client wanted to work an order between the bid-ask spread or for an amount larger than the bid or ask size the bond desk that work those orders.
The desk supports corporate bonds with a minimum size of 100k per trade. We charge the standard electronic bond commission plus a $50 ticket charge per trade.