Exclusive Online Only ContentTradeweb Takes on Icap in Inter-Dealer Agency Bond Trading
November 19, 2009
Tradeweb launched inter-dealer electronic trading in federal agency debt Thursday on Dealerweb, with the goal of taking the bulk of the market from Icap, the world’s largest inter-dealer broker, said an executive at a fixed income services provider with knowledge of the initiative.
Dealerweb is an inter-dealer electronic trading platform operated by Hilliard Farber & Co., a boutique inter-dealer brokerage specializing in mortgage-backed securities (MBS) and owned by Tradeweb.
Tradeweb purchased Hilliard a year ago as a means of entering the inter-dealer business enabled through Hilliard’s existing dealer clients. Hilliard was primarily a voice broker and Tradeweb provided Hilliard’s dealer-customers with an alternative: electronic, inter-dealer trading.
This was Dealerweb, which Tradeweb launched in February and gave to Hilliard to run. It took Dealerweb the single month of March to nab 85 percent of volume in the trading of “to-be-announced” mortgage-backed securities, where trades take place before the pools of such securities that will be delivered are known.
Neither Tradeweb nor Icap has named the dealers who moved their business in from Icap’s Brokertec platform, to Dealerweb.
But Tradeweb, based in Jersey City, N.J., counts the top 10 mortgage dealers as liquidity providers on its electronic TBA mortgage-backed securities offering to institutional investors. They are also Tradeweb stakeholders. They include Barclays Group, Bank of America/Merrill Lynch, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan, Morgan Stanley, Royal Bank of Scotland and UBS.
The inter-dealer TBA market, where trades occur before the granular details of the loans backing the securities are specified, had been dominated by Icap, an electronic interdealer brokerage based in London.
Dealerweb has since “maintained” its “dominant market share position” in TBAs, said the service provider executive.
Regarding the new competition in agencies and TBA from Tradeweb, Icap sent this statement to Securities Industry News: “Our electronic platforms serve a range of markets – some narrowly targeted to a highly concentrated customer base, such as mortgages and agencies – and others to a more broad participation, for example, U.S. Treasuries and FX [foreign exchange.] Markets catering to a narrow customer base are more susceptible to coordinated shifts in liquidity. The change in the mortgages business is a good example of this.”
Debt issued to fund the loan-buying operations of government-backed agencies such as the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Government National Mortgage Association (Ginnie Mae) are called “agency bonds” or “agencies.”
These bonds differ from mortgage-based securities in that agency debt contains obligations that the agency itself owes to creditors, and are issued to raise money.
By contrast, mortgage-backed securities are based on the debt owed by homeowners, which the agencies pool together and issue in bonds called securitizations.
Agencies such as Fannie and Freddie operate under a legislated mission of keeping housing prices low and access to mortgage credit widespread. One means is buying and amassing these home loans, pooling them into bonds, and selling them to investors as securitized debt, aka mortgage-backed securities.
