Tradeweb's all-cash Trumid deal is strategically smart (B+) and extends its major electronic fixed-income platform into new-issue bond trading, though integration risks remain, it may be overpaying and, as the smaller rival, success is not guaranteed; still the right step.

Okay, I want us to move on to our second company, which is perhaps not the most well-known here, but it certainly falls, as I mentioned, into the category of promising investment services, and that is Tradeweb Markets.

It is a type of electronic marketplace for trading securities, not necessarily stocks, but interest rates, credit swaps, and other things that institutional investors may do . The company announced yesterday or this morning, I don't remember exactly when, that it is acquiring the fixed-income trading company Trumid .

Now, since it is not a widely known company , could you first explain what Tradeweb offers, and then give a brief presentation that shows why investors should like this type of company?

Well, as you just mentioned, they do a lot of trading, not necessarily stocks, which might suggest it's a small platform, but they trade Treasury bonds, corporate bonds, mortgages, money markets, and some stocks.

The daily trading volume on the Tradeweb platform exceeds three trillion US dollars across various asset classes. Therefore, they are a major player in the electronic markets for fixed income trading, in particular.

What we like about this platform is that it facilitates the digital transformation process in a huge market that has been very slow. It has been known that stock trading has been digital for 25 years, and no one buys a stock without doing so digitally.

This is not the case for many of the markets I mentioned. Each transaction on the platform incurs a fee, and it is a slow but steady process of digitization , with more of the bond market moving online each year.

correct. How exactly does Trumid fit into this context ? While we try to understand what Tradeweb does and why Trumid is a logical choice at this stage?

Well, if we delve into the details, Tradeweb focuses primarily on the secondary market, i.e., bonds that have already been issued and are traded. Tradeweb has sought to become the primary marketplace for these bonds.

It is true that it has a presence in the trading of new bond issues, but it is not a large one. Trumid, on the other hand, focuses on and specializes in this area , and perhaps it was more daring in its pricing, which is what made it outperform Tradeweb.

So, Tradeweb is trying to create a comprehensive, integrated solution , a one-stop integrated solution . Well, it's a very defensive strategy because they have many competitors trying to do the same thing, but this is their attempt to answer a question that has puzzled these markets for twenty years or so, which is: How do we get into the world of electronic trading?

As I mentioned, it's about new releases , which I assume are more profitable than secondary trading. How do you assess this deal in terms of strategic fit and price, and how does it affect the performance of Tradeweb, which I believe is a company valued at around $27 billion at the time of writing this report?

Okay, I'd give the Salesforce deal an average rating (C). As for this deal, I would give it a very good rating (B+ ) in terms of its strategic intelligence and the fact that it was an all-cash deal.

There are some risks associated with integration, but the deal makes very strategic sense , especially given the competitive nature of the market, as Lo noted .

This appears to be a competitive move against MarketAxess and against Bloomberg, in the bond markets digitization war, and it looks like a very smart strategic move .

This is a reaction. I may be more cautious than Matt, not negatively, because they are the weaker party here. We have given you a brief overview of the problem they are trying to solve.

The biggest competitors are also trying to solve this problem.

Matt mentioned that MarketAxess and ICE ( Intercontinental Exchange) had recently acquired it. So, this is a clear reaction to that. It is clear that they are paying too much, but it is a war of influence, and it is an arena where size wins.

When your biggest competitor is four times your size and aggressive, you need to take aggressive steps. So, I think it's the right step, but it doesn't guarantee success.