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Tradeweb captivates Wall Street as investors buy into electronic bond trading

A leading U.S. electronic trading company has bewitched Wall Street.

With one of the largest initial public offerings so far in 2019, Tradeweb Markets Inc. captivated investors in its April 4 public debut. The New York-based company's newly minted stock closed its first day of trading 32.6% above its initially projected price of $27. At $1.08 billion, Tradeweb's offering was the 16th-largest U.S. IPO since the beginning of 2015, according to S&P Global Market Intelligence data.

Now, as the company ramps up operations as a public institution, Tradeweb's biggest growth opportunity may lie within the corporate bond market, where an increasing number of market participants are relying on electronic trading platforms such as those owned by Tradeweb, MarketAxess Holdings Inc. and Bloomberg LP.

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"The growth in the fixed-income electronic trading space should not be underestimated," said Larry Tabb, founder and research chairman of TABB Group, a capital markets-focused research and consulting firm. "We are at the beginning of a pretty significant growth spurt."

Established more than two decades ago as an electronic marketplace for U.S. Treasurys, Tradeweb has since expanded its business to reach into a host of global asset classes including over-the-counter derivatives and currencies. Today, Tradeweb has more than 2,500 clients, and it recorded an average daily volume exceeding $600 billion in February, according to its website.

The company moved into the public markets after a long string of M&A and IPO rumors, which ultimately spawned from Blackstone Group LP's $17.30 billion deal to acquire more than half of Thomson Reuters Corp. The early 2018 tie-up made Blackstone and Thomson Reuters co-owners of Refinitiv, which still plans to retain control of Tradeweb.

But it is Tradeweb's business in the sprawling and illiquid corporate bond market that has raised expectations for the company across Wall Street.

"The market seems to like the growth story around fixed-income electronic trading and the data that comes with it," Kevin McPartland, head of market structure and technology research at Greenwich Associates, said in an interview. "That's where Tradeweb sits."

At the turn of the century, electronic-trading companies rushed to modernize the corporate bond market by developing platforms based on the best technology available at the time. But, unlike the equity and derivative markets' transformations, the space is still dominated by traders using phone calls, emails and chat messages.

Trading companies' debt issuances over electronic platforms continues to gain steam, though.

Between the first and third quarters of 2018, electronic trading in corporate bonds grew from 19% to 26%, according to a January report from Greenwich Associates. Within that growing share of electronic trading of corporate bonds, Tradeweb held the second-highest market share among U.S. institutional corporate bond investors in the third quarter of 2018, at 9.1%. It trails only MarketAxess, which controls most of the electronically traded corporate bonds with an 85% market share among those investors in the 2018 third quarter.

The projected growth for Tradeweb in an expanding universe of electronic trading has helped fuel investor demand for the company's shares, several industry experts said. The company's stock added 2.2% in its second day of trading on April 5 and was up about 5% more as of midday on April 8.

Tradeweb has also steadily turned a profit in recent years, something that not every company that has recently hit the public markets can say. The company posted net income of $29.3 million and net revenue of $178.6 million in the fourth quarter of 2018, according to its registration statement.

"It's great to see a profitable company tap the IPO market," Kathleen Smith, principal of pre-IPO research and IPO ETF provider Renaissance Capital, said in an interview.