In modern bond markets, axes are the primary means of signaling trading intent. However, axes have developed a credibility problem. For axes to be effective, counterparties must trust that the underlying trading interest is genuine. Counterproductively, existing solutions can incentivize dealers to show axes across as many names as possible in the hope of capturing trades. 

Buy-side traders have adapted to this dynamic – treating axes as indicative rather than actionable. This has resulted in a market where participants consume vast quantities of pre-trade data but remain uncertain about how much of it represents genuine liquidity. To solve the axe credibility problem, the market needs to reward conviction – not just visibility. 

High risk, low reward 

Generally speaking, distributing and signaling true intent through axes carries significant costs with relatively few incentives. Publishing genuine size and aggressive pricing exposes valuable information about inventory, positioning and risk appetite. This risk is worthwhile if the audience can be limited and, importantly, if the sender is rewarded with finding genuine counterparties to trade at size. 

The market has lacked channels to solve this problem at scale. Protocols such as RFQ inadvertently disincentivize advertising genuine intent by using pre-trade data to drive dealer selection. This rewards dealers for representing interest across a wide universe of bonds in the hope of being included in trading workflows, rather than where they have genuine trading interest. 

Using pre-trade data for dealer selection isn’t inherently problematic, but two key limitations have eroded axe quality. First, there isn’t a recognized pre-trade data standard governing the type, purpose and intended use of that data, making it difficult to consistently distinguish genuine trading interest from pricing. Second, when axes are used to drive an RFQ process, buy-side expectations of price improvement mean that dealers cannot lead with their best price on the original axe. These factors perpetuate a negative feedback loop where both sides are incentivized against cooperating to find the most efficient price – neither side wins. 

Without an appropriate channel for axes that represent genuine trading intent, high and low-conviction liquidity is indistinguishable. Traders therefore spend more time validating pre-trade information, testing prices and searching for genuine interest – a particular problem for large, complex trades, where execution quality depends on finding the right liquidity rather than more liquidity. 

Quality over quantity 

The industry often talks about the challenge of finding liquidity. Instead, it should be focused on protecting liquidity quality. 

The next phase of electronification will not be won by the platform with the most data. It will be won by the platform that distinguishes between data and liquidity. Our purpose is therefore to create an ecosystem where dealers are confident that their information is protected and investors are confident in the liquidity that they see. 

Better information leads to higher-quality engagement, improved execution outcomes and greater participation. In turn, this encourages more genuine liquidity provision and creates conditions for larger and more complex trades to migrate into electronic channels. The next generation of protocols must reward actionable liquidity and be supported by effective technology and robust governance – these factors together allow the market to unlock a more positive feedback loop which enables more efficient price discovery and improves outcomes for participants and the market as a whole.