Fourth in a series of interviews with technology leaders whose views are relevant to AMG members.

Interview with Tom Eady, Managing Director, Thomson TradeWeb

Asset Management Group: TradeWeb recently made an increased commitment to its STP business. Can you describe what is different now?

Tom Eady: We are actively building up our TradeXpressSTP business, in order to deliver a comprehensive trade processing solution for the marketplace. This is not just a service for traditional TradeWeb trading clients but for the industry at large. We have hired a number of additional staff and are looking to further expand our STP team. Simply put, our goal is to provide state-of-the-art STP for any client, any dealer and any trade.

Asset Management Group: What was the reasoning behind the decision?

Tom Eady: Since its inception about nine years ago, TradeWeb has been innovating in the online trading space and we've done a lot of things that have transformed the landscape for fixed income and derivatives trading between dealers and customers. These innovations have included many pre- and post-trade STP services that are tightly integrated into the overall trade cycle, saving our clients both time and money.

However, we recently determined that we could unlock additional value for our pre- and post-trade services by offering clients the choice of unbundling our TradeXpressSTP straight-through processing network from our trade execution platform. For example, we now offer clients the ability to use our TradeXpressSTP network to affirm block trades and send account allocations to all of their dealers for all trades, not just those executed on TradeWeb or with TradeWeb dealers. This has opened it up to a lot more of our clients' trade flow because they no longer have to maintain separate post-trade processes and communication channels depending on the asset class and the dealer with whom they did the trade.

Asset Management Group: Is that done on a real-time basis?

Tom Eady: Yes. However, the trick is how to capture the trade information at the point of execution if a trade is not executed electronically, either on TradeWeb or another platform. To solve this, we've been working with clients to integrate their internal systems directly with TradeWeb and the TradeXpressSTP straight-through processing network, whether it's an order management system or some other internal client system.

For those who might not currently have an integrated order management system capability, we've had to provide other means for them to get that trade onto our TradeXpressSTP network so that it can show up on their STP blotter and give them the ability to process the block trade affirmation and subaccount allocations.

Asset Management Group: What's the reaction been so far?

Tom Eady: We made the change in November, and it's been well received on both the buy side and the sell side. The buy side, in particular, really wanted us to expand the asset class coverage for our TradeXpressSTP network. We've also been asked to work more closely with industry utilities like DTCC and its Deriv/SERV matching system, as well as the Trade Warehouse, which we have done. We've built some leading-edge capabilities in the credit derivatives space to help clients get their trade information into, and out of, Deriv/SERV and the Warehouse.

Asset Management Group: What has been the impact?

Tom Eady: At the end of the day, we've helped both customers and dealers achieve additional returns on their investments in systems other than TradeXpressSTP by making it possible for more complete process integration and simplification. It's created synergies for them that I think are going to pay off sooner rather than later in terms of increasing efficiency and reducing processing costs. Our clients can now get a faster start with creating these efficiencies, as most leading customers and dealers are already familiar with, and active on, the TradeWeb network. Therefore these clients already have the necessary software available on their desktops. It's simply a matter of activating the STP features and training the users.

Asset Management Group: Has there been much going on over the past year or two with the TradeWeb integration?

Tom Eady: Yes, we've been integrating with both vendor order management systems as well as proprietary OMS for quite a while now, and we have approaching 200 client integrations in place with the leading vendor systems. Thomson Financial also launched an order management system called TradeCentral about six months ago which extends the range of options for buy side clients to achieve workflow integration with TradeWeb. In fact, we've pre-integrated TradeWeb with the TradeCentral OMS, so that right out of the box the client has a fully-integrated capability to manage portfolios, send trades to TradeWeb for execution, and receive the execution reports back into TradeCentral.

According to a recent Greenwich Associates survey, 60 percent of buy side institutions trading electronically are using TradeWeb, so we're starting out with a sizeable client base to work with.

Asset Management Group: Why is data so important in connection with the services offered by TradeWeb and other leading electronic trading firms?

Tom Eady: In every trading market, most trades start with market data. For example, in equities, traders have feeds coming from all the exchanges and liquidity pools so they can get an accurate, real-time understanding of where they can buy or sell a security in any of the venues that they can do business on.

Although there aren't exchanges in the fixed income markets, the client still needs as much price information as possible from as many market makers as possible to get a clear picture of where bonds are being priced. At TradeWeb, we actually perform that service for our buy side customers by aggregating live prices from many dealers across the range of securities that can be traded on our platform.

Trusting the market data is critical for giving the buy side trader confidence that they have the most accurate information available about where and how to get a trade done. It also helps clients with their best execution analysis requirements by giving them access to highly accurate market price information. For example, TRACE is a great source of information for corporate bond trades, but TradeWeb has taken the TRACE feed and enhanced it with some additional analytics to make it even more valuable for best execution analysis.

But a need still exists for similar information in all the other asset classes since there is no TRACE feed for mortgages, Treasuries, agencies or derivatives. TradeWeb's ability to aggregate live price information about where trades are getting done in all those other markets provides an additional source of data that is in great demand for buyside clients, and for dealers who also have best execution requirements.

Asset Management Group: Has automation finally arrived in derivatives markets?

Tom Eady: There is no doubt about it. We are finding a lot of interest in our new technology that makes the process for confirming derivative trades more efficient. For example, adoption of DTCC's Deriv/SERV as the industry trade matching and warehouse utility has caught on, and we are now providing buy side customers with the tools to help them get trade information into, and out of, Deriv/SERV more efficiently.

TradeWeb has a commitment to be at the forefront, providing innovative and cutting-edge solutions where the workflows can be very complicated. For example, we currently provide all the electronic messaging that's required to achieve fully-compliant novation messaging for all parties for assignment or termination of derivatives contracts.

We've been told that the functionality we provide to hedge funds, prime brokers and the executing dealers for prime broker intermediation trades is state-of-the-art. In fact, TradeWeb executed its first fully-integrated prime broker intermediation trades this past October.

Asset Management Group: Is the primary market in derivatives always going to be a telephone business?

Tom Eady: The reality is that in certain markets, there will always be a great deal of phone or voice trading that gets done, particularly for the complicated, highly-negotiated derivatives transactions.

Nonetheless, we want to provide the capability for our customers to improve the efficiency of their middle and back-office operations in situations where a high percentage of their volume may still get done over the phone. I would argue that we're now in an even better position to offer services that will add significant value for our clients, regardless of the mix of electronic and voice trading they may use.