Tradeweb Completes IPO, MarketAxess No Longer Lonely…

“There is no avoiding pain, especially if you’re going after ambitious goals.” – Ray Dalio

The dominoes started falling years ago. It is only now – last week, on 4 April, to be precise – that we receive a new perspective on the data.

Here’s the setup: Quantitative methods and automated trade workflows started to shift the consumption of market data from eyeballs to servers way back in the 1990’s. As automation of front-office (i.e. – signal generation) and middle-office (i.e. – trade execution) increased, the shift of market data consumption from eyeballs to servers increased as well.

When the austerity regimes of the post-GFC period hit in 2010 and after, the convergence with the quantitative migration caused the shift in market data consumption to accelerate. Lower-cost cloud-based offerings for less-intensive use cases only exacerbated this shift. Those market data solution providers that were more heavily weighted to equity markets and revenue concentrations to the sell-side were hit the hardest.

We can see these dynamics play out in the Eikon and Elektron revenue breakdowns – which related to “screens” and “feeds,” respectively – in the exhibit below, where we can see feeds overtaking screens in the 2016-2017 period:

The impact that the convergence of these trends – trade workflow automation, post-GFC austerity, and use case pricing segmentation – can be seen in the top line figures for the Financial & Risk division of Thomson Reuters in the exhibit below:

What happens next is a textbook restructuring: The financial and risk (F&R) division is cleaved from the original Thomson Reuters Corp. and a majority stake is sold to private equity group, Blackstone. The unit is then re-branded as Refinitiv and, most recently, the value of the deal begins to be monetized by the sale to the public via IPO of the valuable Tradeweb Markets assets.

With the publication of their latest S-1 amendment (S-1/A3) on 2 April, we now have some new data to shed additional light on the “equitization” and/or the “electronification” of the fixed income derivatives markets – mainly interest rate and credit default swaps – where Tradeweb’s core business resides. This comes as a significant complement to the data from Tradeweb’s closest public competitor, MarketAxess, that has been flowing in the public domain since 2005.

In the exhibit below, Alphacution present a top line revenue comparison of Tradeweb, MarketAxess, and the “transactions” revenue reported by Thomson Reuters for the period 2010 to 2018:

One more thing for now: Alphacution has discovered that it can be illuminating to compare companies in similar lines of business by the analytic revenue per employee (RPE). The main caveat, however, is that using RPE improperly can cause illusions, as well. Culturally, some companies run lean – sometimes too lean – and display high relative RPE’s. Other companies may run a little fat – sometimes, a little too inefficient (which is what causes the “fat”) – and therefore display low relative RPE’s. Variance in business mix can also cause variance in RPE (due to variance in segment pricing power) even though competitors may be running at the same level of operational efficiency.

This is a long-winded way of providing some context – and, a hedge – for the exhibit below where Alphacution presents the RPE’s for both Tradeweb and MarketAxess:

Given the early stage of the comparative modeling, Alphacution temporarily reserves additional comment on the figures above other than to note that both are more representative of an automated trading operation than of a FinTech solution provider. To wit: In the exhibit below, Alphacution presents the average of 35 FinTech solution provider RPEs – the “BigFinTech Index” – for the period 2005 thru 2017:

We will stop here for now.

More soon.

Watch this space…

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By | 2019-04-10T23:14:14-04:00 April 10th, 2019|Alphacution Feed|

About the Author:

Paul Rowady is the Director of Research for Alphacution Research Conservatory, a research and strategic advisory platform uniquely focused on modeling and benchmarking the impacts of technology on global financial markets and the businesses of trading, asset management and banking. He is a 30-year veteran of the proprietary, quantitative and derivatives trading arenas. Contact:; Follow: @alphacution.