DelphX LLC, the first provider of continuously-updating benchmark pricing for fixed income securities, has unveiled QuotePx, a secure OTC network being developed for confidential communication among fixed income dealers and investors.
Within QuotePx, investors will gain access to customized quotes from competing dealers, a suite of comprehensive TCA and best execution tools and alpha for providing market making resources to dealers. Dealers, in turn, will gain access to vast reserves of inventory supply and demand for deployment in intermediating market liquidity, without adversely impacting their capital position.
Unlike all-to-all platforms, in which one price must apply to the entire market and traditional OTC trading protocols are disrupted, QuotePx is dedicated to enhancing the traditional roles and relationships of buyside and sellside firms. Its innovative design enables dealers to automatically tailor each quote/order to the specified recipient(s) and investors to receive customized quotes from a marketwide array of competing dealers – all without incurring transaction fees.
"Prices pushed out to the entire market tend to be higher than prices targeting a specific customer or customer type, as the ultimate recipient of price cannot be known. This dynamic has limited the number of trades done to date via existing trading platforms," says Kevin McPartland - Head of Research for Market Structure and Technology at Greenwich Associates.
Despite the many electronic platforms available, dealers and investors continue to negotiate most of their corporate bond trading volume, and virtually all large trades, via phone-based interaction and digital messaging. QuotePx is designed to automate and streamline that process, by enabling dealers to synchronously transmit encrypted recipient-specific quotes, orders and messages to specified customers and/or customer types, and investors to synchronously transmit encrypted RFQs, acceptances, counters and instant messages to specified dealers.
Another valuable innovation is the proprietary "Caching" protocol integrated within QuotePx, through which dealers and investors can negotiate contractual caches of inventory supply and capacity for dealer use in intermediating market liquidity. In return, investors will receive negotiated pricing concessions and other alpha incentives.
"QuotePx caching protocol is an ingenious adaptation of 'covered calls' providing dealers access to inventory without the necessity to carry it on their balance sheets. Caching may also dampen market volatility, as dealers owning cached inventory are effectively long optionality- creating a more heterogeneous mix of participant objectives," says Robert Hedges, a financial markets product strategy consultant at Hedges Associates.
"We believe an ideal market offers participants a variety of optional interfaces and trading protocols from which to choose," notes Larry Fondren, President and CEO of DelphX. He added, "QuotePx offers dealers and investors the option of streamlining their current OTC trading protocols in a secure digital environment, profitably sourcing sustainable market liquidity and materially lowering their trading costs".
"The market doesn't need dozens of platforms, but it does need choices to meet the diverse trading styles and strategies dealers and investors present. A network that enables dealers to customize liquidity on a client-specific basis, would cut transaction costs and increase trade frequency," adds McPartland.