Tradeweb deploys pricing protocol in new institutional platform

Following the launch of the Tradeweb US options platform for institutional customer-to-dealer trading, SRP spoke to Adam Gould (pictured), head of US equities at Tradeweb Markets, about replicating the success of the platform in Europe and the benefits of putting liquidity providers in competition.

Designed to improve efficiency and access to liquidity in the growing US options market, the platform allows institutional investors to directly source full-size price quotes from multiple market makers using Tradeweb's request for quote (RFQ) protocol for fixed income, cash and derivatives as well as exchange-traded funds (ETFs).

"The launch complements what we have done in ETFs and European equity options over the past few years," said Gould. "We want to replicate that success."

The platform builds on the success of Tradeweb's European equity options and global ETF platforms, "with the latter demonstrating the value of the Tradeweb RFQ model in unlocking liquidity, with 40 million shares traded on average every day and more than US$888bn in ETF volume executed since launch", according to Gould.

"Our institutional ETF trading platforms were an important step in enabling buy side institutions access to better pricing and size for block ETF trades," said Gould, adding that the launch is in direct response to clients who want the same value they experience executing ETFs applied to options. "Just as we've seen on our ETF platform, we expect our new options offering to drive better pricing for clients, while also streamlining their workflow and demonstrating best execution."

The new platform offers RFQ trading of multi-leg options strategies on all US listed and OTC options on single stocks, ETFs, and equity indices including long condor spread with puts, long put condor, iron butterfly and double diagonal strategies, among other.

Institutional investors will now be able to send simultaneous electronic price requests using the RFQ protocol to multiple liquidity providers, putting them in competition for the trade. This creates more aggressive pricing and tighter spreads while eliminating the need to call individual dealers or work across multiple exchanges for pricing and execution for large trades, according to Gould.

Full audit trails
"Clients appreciate having multiple liquidity providers in competition because it not only improves pricing, but also streamlines their workflow by allowing them to request and receive multiple quotes simultaneously," said Gould. "Additionally, doing this electronically enables them to track the process in a very compliant-friendly way with full audit trails."

The platform is viewed favourably from a compliance perspective because it improves price discovery and stores all records of inquiries and executions, according to Gould. "Full audit trails are becoming increasingly important for our clients," he said.

Currently, nine liquidity providers, a mix of banks and proprietary trading firms (PTFs) are live on the platform. The launch in the US follows the announcement of the future launch of RFQ trading for single stocks in Europe in association with the Plato Partnership.

The Tradeweb Plato 'eBlock' will enable participants to source and aggregate broker principal risk liquidity, addressing buy-side concerns over market fragmentation, providing the buy-side with direct control over their execution, and offering both the buy- and sell-side the opportunity to match, negotiate and execute on a regulated venue.

"The platform is scalable and we will add new functionality and tools to meet user demand," said Gould. "The growth of electronic trading continues to happen quickly. It is early days for our US equity options platform, but we see value in offering our clients new tools to address our clients' pre- and post-trade needs."

The Plato partnership is managed by Delta Capita which also runs a consortium of seven tier one product manufacturers in Europe seeking to coordinate implementation of a shared solution to comply with the packaged retail and insurance-based investment products (Priips) regulation.

The Plato Partnership includes Axa Investment Managers, Baillie Gifford, BlackRock, Deutsche Asset  Management, Fidelity International, Franklin Templeton  Investments, JP Morgan, Norges Bank Investment Management, Union Investment, Barclays, Bank of America Merrill Lynch, Citi, Deutsche Bank, Goldman Sachs, Morgan Stanley, and UBS.

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