Financial Exchanges 2005 - Competitive uniqueness

IFR Financial Exchanges 2005
6 min read

It has been a good year according to Lee Olesky, CEO of TradeWeb. “This has been a huge year in terms of adding new products, and though its been a big undertaking, we have the skill set. We’ve been doing this the longest, we have the technology team in place and the innovative product and sales team to deliver,” he said. (TradeWeb is owned by Thomson, IFR’s parent company.)

TradeWeb recorded global volume growth of 66% year-on-year in the first half of 2005, with average daily volumes of more than US$160bn in the second quarter. Those figures underscore Olesky’s assertion that his firm is having “another strong growth year, which is proven by the numbers and is across the board”.

“On a product-by-product basis, our most recently introduced instruments such as the US credit product are starting to grow significantly,” he said. “Over the first half of the year we’ve been getting into slightly more complex products like derivatives, the interest-rate swap product and US repos. We have also added functionality to our credit product in the US. Our interest-rate swap product, which we launched a couple of months ago in Europe, is really taking hold,” added Olesky. “It’s growing on every scale, whether that’s by number of clients, number of trades, overall volume or number of dealers. The repo product is also on an equally firm footing.”

The second half will see the launch of TradeWeb’s first credit derivative product, the CDS indices. “These will be launched in both the US and Europe over the fall. We are adding functionality and more dealers to the platform so we can create more interesting products for the sell and buy-side customer base,” said Olesky.

Emphasising its unique product offering he said: “There’s always competition out there, but when you look at us in terms of volumes and breadth of product we’re pretty unique. Sometimes, numbers are not our friends, so you need to take a step back and see what this really means. [Our] global volumes are equivalent to the combined value traded on the world’s four largest stock exchanges. Look at the New York Stock Exchange, take the shares traded daily and multiply by that by the average price, then do that with the Nasdaq, LSE and Deutsche Boerse and you are starting to get to our number just for a single day’s trading on TradeWeb.”

TradeWeb’s US$160bn average daily volume figure compares well with rival MTS’s volume of US$104bn on average per day and e-Speed’s US$112bn. All these exchanges are dwarfed by ICAP’s first-quarter daily average of US$460bn. However, it should be acknowledged that TradeWeb is the only business-to-consumer platform, while the others are all principally business-to-business platforms.

Olesky said that TradeWeb had been a consistent growth story, and that was set to continue. “As we add the derivative products we are increasingly capturing the market’s movement,” he said. “We are participating in a trend in the movement of fixed income and derivative trading to an electronic environment that is more efficient and transparent.”

He claimed that the MBS product in the US had seen the most growth year-on-year, adding that “this development is tied to what’s happening in the underlying market, and that’s why we think it’s so critical to have this diversity of product offering”. However, Olesky rebutted claims that TradeWeb had failed to expand its MBS business to Europe. “The European mortgage-backed market is relatively small compared with the US,” he said. “In Europe, you don’t have these big federal agencies – there is no equivalent of Fannie Mae or Freddie Mac. It’s like comparing apples and oranges.”

As for future developments, he said: “Our decision-making process and priorities are based on what our clients tell us. We are not so smart as to figure out these things on our own. We go out and speak to our customers and dealers, get their best ideas and see where we can add value.”

Regarding its European sovereign sector market share, Olesky noted that TradeWeb has “had phenomenal growth in Europe, but you have to recognise that the European government bond market is a fraction of the size of the US Treasury market. We are doing approximately the same percentage in European government bonds as Treasuries.”

He rejected the view that the TradeWeb technology platform – based on a request for price model – could soon become outdated. Olesky conceded that “the markets are always evolving, but sometimes in terms of protocol it’s not as quick an evolution as people expect. We are always looking at the various types of model being applied in different markets. We want to be prepared for change if our customers demand it, but at this time we are very pleased with the present system. That doesn’t mean we are not looking at other models.”

As for the possibility of TradeWeb entering into the wholesale or B2B (business to business) sector, or indeed the “All to All” market – where institutional clients and banks operate on a level playing field – Olesky said there were “no plans as yet, but we never say never. In the business world you always need to be prepared for change and the next opportunity.”

Finally, commenting on the burgeoning Asian roll-out, Olesky said that TradeWeb has “a licence to operate in Singapore and in Hong Kong. Japan approval just came this week. We are offering our Asian clients access to all the markets that are available in Europe both in euros and dollars, so we expect it will grow. We have a sales force in Asia and we will continue to build.”