In one of my first blogs last year, I mentioned that e-trading in institutional cash credit had failed, or was in the process of failing. Most comments seemed to agree, placing the blame on the market structure, dealer commitment and ECN functionality.

I thought it was time to revisit, especially after chatting at length, last week, with a few people with a vested interest in credit e-trading (cash and to a lesser extent derivatives). After the chat I wondered “had I been too negative back in November?” Well let’s have a look at why they feel the market has much more room for growth.

* In terms of credit e-trading, they see a future with cash as the core, with CDS remaining as “potential” for a while (at least another two-years until the banks let it go) – although they see some appetite for CDS list business with MarketAxess and Creditex Q-wixx. Primarily as dealers see more STP benefits than price transparency costs.

* Word is that the controversial MarketAxess fee system of charging the buyside has had little effect on volumes – remaining around the €8-9 billion a month, although it is early days. This tells me that they’ve done a good job selling the idea to their existing, loyal customers, but how do they grow the business when they are alone in charging the end-user?

* Can see cash volumes moving from the current 15% electronic (thought that was a touch high?) to 40% over the next two-years. When I asked how, they feel it will come via bigger tickets (€5m+) being traded electronic. Now this is a bit obvious so I dug a little deeper. They see this break of the €5m ceilling coming via tradable axes distributed to tier-1 buyside counterparts and single-dealer sites (be they proprietary or hosted by an ECN).

* One suggestion to “protect” the price makers on these axes would be for them to display the size (bid or offer) only and then for the client to send an RFQ (Personally I can’t see how a tier-1 fund or hedgie would entertain this model. What they’d want is size, price or spread and be able to hit it).

So, was this enough to convince me that institutional cash credit e-trading has a brighter future than I first thought? Essentially, no it wasn’t.

It makes sense that some larger deals will go “e” if the banks and their vendors get the tradable axes piece right, but it would require more structural change in the market before it could truly become a strong e-product. Given the current outlook for credit, this is unlikely to happen soon. For mine, the likes of CDS (indices and single-names) are the way forward for e-credit – but I agree it will be a good two-years before anything significany happens, perhaps in the form of a LiquidityHub type deal or indeed via LiquidityHub if it is a success.

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