Electronic Protocols Offer Options for Trading Asia Credit

In global credit markets, electronic trading protocols have gained widespread acceptance and proved resilient channels to liquidity, catering to specific regional dynamics and requirements. However, it’s not unusual for credit traders to seek safety in more traditional execution protocols when volatility takes hold. Old fashioned voice trading remains a go-to choice for tougher transactions on the best of days, and a fallback for some when conditions turn sour.

This has been particularly prevalent in Asia, where voice trading has reasserted its dominant grip over the local credit market in the wake of the 2021 China real estate crisis.

The market dislocations from the crisis on Asia credit were, after all, severe. Daily trading volume fell from about $58 billion in March 2020 to $15 billion in December 2023, recovering only slightly today. Meanwhile, new issuance plunged to levels 40-50% below its high point of $610 billion in 2020/2021. Sourcing liquidity with tight bid/offer spreads suddenly was excessively challenging for those still active in the markets. (Source: ICMA’s ‘The Asian International Bond Markets: Development and Trends Fourth Edition, March 2024’).

As a result, in searching for comfort, insight and discretion, Asia’s buyside reverted mostly to the time-honoured way of trading bonds, believing that a phone call or message are still the best methods for doing a deal. But by pivoting away from electronic protocols, the buyside is missing out on liquidity, innovations and pricing practices that could dramatically change how it sources real interest, matches bids/offers to dealers, and improves execution pricing.

Discovering a Path to Liquidity

Among these electronic protocols is Tradeweb’s SNAP IOI, which automatically selects dealers for trades based on untraded positions from Tradeweb’s interdealer matching sessions (or auctions), Sweep. Unlike all-to-all blasts, which broadcast positions far and wide, SNAP IOI funnels quality, rather than just a large quantity of, dealers to the trade, helping to minimise the information footprint of the transaction while ensuring best execution.

When a trader submits an order through the Request-for-Quote (RFQ) protocol, and then selects the SNAP button to select dealers, behind the scenes SNAP checks if any dealers have outstanding positions from the daily auction in the requested bond and in the direction the trader wants to trade. It then selects only those dealers whose positions are equal to or greater than the order to be included in the RFQ. The trader has the ability and control to manually change this list of dealers, or choose other dealers, should they decide to.

This process delivers some key benefits to the buyside trader:

• Access to a unique pool of interdealer liquidity.
• Drill-down to the best dealer axes and prices.
• Control of information by only targeting motivated counterparties.
• Customisation of a preferred dealer list.

Since SNAP IOI’s inception in Asian Credit, the protocol has achieved superior transaction cost analysis compared to other dealer selection methods. It taps liquidity from Tradeweb’s interdealer Sweep auction, where more than USD 1.5bn of notional volume across 1,000+ ISINs is submitted daily (Source: Tradeweb, November 2024). Any unmatched interest from these daily auctions then becomes available as axes through the SNAP IOI functionality.

Channeling Liquidity to a Barren Asia Credit Market

As liquidity in Asia credit thinned out the past few years, finding dealers interested in a given trade has become increasingly challenging. As that reality sinks in, the buyside has doubled down on their familiar dealer ties, hoping for an edge in information and relationship support for their trades.

In doing so, they eschewed other avenues to liquidity, compounding the structural issues already present in the market. Those who have explored protocols like SNAP IOI, have discovered unexpected opportunities with dealers they don’t often use, or have never considered using. And those dealers were already primed to trade, since they’d posted their positions through the interdealer Sweep auction. When it came time to execute the trade, buyside users often picked a dealer that they didn’t normally use.

It’s still early days for SNAP IOI in Asia. If the experience in European credit, where we’ve seen over EUR 26 billion notional in submitted orders made up of 8,000-9,000 ISINs (source: Tradeweb data, January 2025), can be used as a guide, we believe that the protocol can support the Asian credit markets by creating more transparency and liquidity in a wider range of bonds.

Safety and certainty of execution in tough markets can be a scarce and valuable commodity for buyside traders. It’s not surprising to fall back on a time-tested approach with familiar dealers. But in markets around the world, electronic protocols are proving a reliable extension of liquidity, transparency, and price discovery the buyside can tap into for best execution, alongside their calls to dealers.   

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