So that gives you a little bit of a continuum of the impact. Probably also worth mentioning that in terms of things that move duration, it’s also impacted by the level of absolute rates. And so maybe another way to kind of think about the model and kind of putting these together gets you a really nice opportunity. But if rates were to fall by 100 basis points across the curve, that same concept of the risk being created in a 10-year dollar swap could rise by another 5% or 6%. And on the IG side, another 5%. So there are a couple of different variables. Business mix always being the biggest, but hopefully, that gives you a little bit of context as to how to model or think about the opportunity for duration.
Operator: Our next question will be coming from Craig Siegenthaler of Bank of America.
Elias Abboud: This is Elias Abboud from Craig’s team. It looks like the RFM protocol in swaps is breaking out. It looks like volumes there have tripled since 2021. What makes this protocol a great fit for swaps? And have you guys evaluated maybe rolling it out in other asset classes?
Tom Pluta: It’s Tom, and thanks for the question. Yes, the RFM protocol or request for market has gained a lot of popularity and swaps, particularly in emerging markets but also in developed market swaps. Just to remind people who may not know, this is where rather than asking a one-sided price in an RFQ, you ask for a 2A price. The primary benefit to a customer and receiving a 2A price is to minimize information leakage to the market, not signaling the direction that they want to trade. So in markets where you have 2A streams, continuous markets, for example, U.S. treasuries, there’s no real need or demand for RFM, but in less liquid markets or trades where there’s a larger price impact like swaps compared to cash bonds or EM generally compared to DM or larger trades compared to smaller trades, there is a benefit.
For that reason, it has picked up as a protocol, particularly in EM. There’s also a benefit for dealers in avoiding what we call the winner’s curse, right? So if a whole bunch of dealers get asked the price and they know the direction, when you win that trade, you got to be more cognizant of how you manage that exiting that trade, particularly in less liquid market. So we have been expanding the protocol as we see the demand from clients and dealers to support the protocol. For example, list trading and swaps is moving more towards RFM. So we do think that RFM can expand to other products, yes, but we do so in a very thoughtful way. And when we see both demand on the client side and support from dealers to maximize the impact on the likelihood of success.
Operator: Our next question will be coming from Michael Cyprys of Morgan Stanley.
Michael Cyprys: Just a question on ETFs. We’ve seen meaningful growth across the industry, particularly fixed income ETFs over the last couple of years. And you expect ETFs to be a beneficiary of a potential fixed income rotation. So can you just talk about how this is impacting your business and how you see this impacting market structure more broadly as fixed income ETFs continue to grow and how do you think about best monetizing the opportunity set here? Maybe talk about some of the steps you’re taking here in ’24.
Billy Hult: Yes. Michael, it’s Billy. Thanks for the question. And I think ETFs is like absolutely the right time to sort of ask a question like that, so thank you. You know us very well. But from my perspective, a little bit of like — our story has always been about like what I would describe as expansion, right? So it’s sort of vertical across client channels and then horizontal across products and geographies, right? And so I wouldn’t say it was necessarily like the elevator pitch when we went public. But when we were going public, Tradeweb was very well known as a rates trading platform kind of period. And in 2023, the reality is that almost half, I think it’s like — I think it’s actually 48% of our revenues now come from non-rates businesses and 40% of that growth has come from non-rate businesses in 2023, right?
That’s like a big number, right? So our investment and our execution in ETFs is like a huge piece of that story. It’s like not that we couldn’t spell ETFs in 2016. Obviously, like an E and T and an F. But we didn’t have like unbelievable domain knowledge and expertise in 2016. I think we sense the opportunity, and I think we were viewed as the correct kind of industry partner around building a business there, and I give our team a lot of credit for figuring all that out. So now what we’re seeing is like this — what I would describe as almost like an expansion of sophisticated market participants obviously, including ETF market makers that are investing heavily to challenge what I would describe as the traditional manual kind of trading conventions.
And my instinct is this push is sort of like this one-way train kind of thing, right? Market participants are now using — have multiple pricing sources, modeling techniques and market indicators to derive essentially a more accurate and up-to-date pricing on a bond, right? So we kind of understand all of that stuff. I would say the leading ETF player expects fixed income ETF AUM to triple by 2030, right? These are like big one-way market trends now that we feel, I think, proud to be a big part of. We’re going to monetize this all in a very straightforward way for our institutional ETF business globally that’s doing really well. And then I would kind of remind you for a quick second, just the nature of how important these ETF market makers are in terms of credit market making in our sort of day-to-day operations of our credit business and we feel really good that we’re monetizing that piece of the market as well.
They are fundamentally important and strong players for us on the credit side. So it’s feeling really good about how we’ve gotten here with ETFs and kind of where we’re going. I think the credit piece of it is a really big one.
Operator: Our next question will be coming from Patrick Moley of Piper Sandler.
Patrick Moley: I was hoping that you could share some more details on the opportunity and time line to monetize the closing auction pricing data how your relationship with FTSE benefits the strategy there? And then any color you can give us on how to size the TAM there would be very helpful as well.
Billy Hult: Patrick, it’s Billy. Real quick — congratulations on like two things. First, asking a straightforward question coming from HyperCamera on the heels of our friend, Mr. Repetto. And two congratulations because we definitely heard you had had a baby, it’s the best in the world. So congratulations from the Tradeweb team. And thanks for a really good question. It’s interesting, right? You’re talking about like trade at close, you’re asking you questions about trade at close. And my brain is going a little bit to the complexity of, for example, like the government bond market. The first question was about r8fin and about how these sort of macro hedge funds are engaging in liquidity through smart algorithms in r8fin then.
And this is almost like the other side of the coin in the government bond market, right? The thread is obviously all about like innovation and efficiency. But the other side of the coin are these, obviously, these large, large asset managers that track the benchmark that now we’re looking for what we would describe as moments in time where they need liquidity. And so I mentioned the concept before that it’s all about the client. It’s all about the client understanding those clients’ needs. And so that’s how we’ve built the protocols for us around trade at close. Clients are now leveraging list trading tools where we provide valuable kind of what we would describe as like post-trade data where they are filled relative to our reference prices.
It’s pretty straightforward that works exceptionally well at the end of the month, some of our biggest, most important clients are accessing that protocol now through us. We currently have an official closing price on treasuries, U.K. gilts, European government bonds, where FTSE is our third-party administrator not to hand you a brick, Sara, but if you have a little more comments on our FTSE relationship and where we’re going kind of around that pricing.
Sara Furber: Sure. I can jump in there and congrats, Patrick, as Gilead mentioned. On the FTSE side, I would just say, look, in order to have a trusted and valued benchmark, we need and we look to partner with third-party administrators that validate that methodology. And we have a really strong and good relationship with BPCI. It makes sense to continue to partner with them. I think as Billy referenced, we have a track record of working with them on the U.S. Treasury U.K. and European government bonds. And as we think about going forward, we see the expansion of that relationship across new benchmark products. So there’s things that we’re working on adding bid-ask information to the mids that we already use in products. We have muni AI pricing potential becoming a benchmark.
