Intercontinental Exchange, the owner of the New York Stock Exchange, has made headlines by investing in buzzy areas such as prediction markets and crypto.
This week, ICE showed it is still excited about the less revolutionary business of bond trading.
With its $6 billion acquisition of MarketAxess, Atlanta-based ICE is putting another pile of chips on its bet that the market for trading bonds will keep going electronic, following in the path of other asset classes where sweaty Wall Street traders shouting out prices have been replaced by screen-based trading tools.
Here's what you need to know about why ICE is acquiring MarketAxess.
Bonds are gradually going electronic
Historically, it has been much easier to create an electronic market for stocks than for bonds. While a company will typically issue one set of common stock that is widely held by investors, it might issue many different series of bonds, with different expirations, which could trade frequently or rarely. The complexity makes it harder for a vibrant centralized marketplace to emerge, because trading is spread across many different types of bonds.
Still, electronic trading has gradually taken off in the bond market. It got a notable boost during the Covid-19 pandemic -- a time when many other things were going digital -- after volatility forced traders to turn to e-trading platforms like MarketAxess.
Last year, 49% of the market for U.S. investment-grade bonds was traded electronically, up from 20% a decade earlier, according to Crisil Coalition Greenwich. Over the same period, the share of high-yield bonds traded electronically rose to 32% from 6%.
ICE is often at the forefront of shifts in market infrastructure
Intercontinental Exchange, led by founder and longtime Chief Executive Jeffrey Sprecher, has a history of making astute investments in marketplaces that are undergoing a shift toward electronic trading.
In the 2000s, ICE snapped up a number of futures exchanges with old-fashioned trading floors and turned them into all-electronic markets. More recently, ICE has invested in the plumbing of the U.S. mortgage market, betting that its legacy, paper-based processes are overdue for digital transformation.
Over the years, ICE has done several deals to deepen its presence in the bond market, but its biggest business is in providing fixed-income data and analytics, rather than actually executing bond trades.
With the MarketAxess deal, ICE hopes that combining a big trading platform with its existing data business will make it a ubiquitous player in fixed-income markets.
MarketAxess is an industry pioneer facing pressure
For years, the big names in electronic bond trading were MarketAxess and Tradeweb, with the former specializing in corporate bonds and the latter better known for Treasurys.
But MarketAxess has lagged behind since the early days of the pandemic. Last year it handled 35% of volume in corporate bonds, down from 61% in 2020, with Tradeweb and an upstart rival, Trumid, seizing much of its lost market share, figures from Crisil Coalition Greenwich show.
MarketAxess's stock price has slumped since then, falling more than 70% from its peak in December 2020. Now, it is set to become another building block in Sprecher's empire.
"MarketAxess will make our network broader and deeper," the ICE chief said on a Thursday morning earnings call.
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