BlackRock Integrates Rates Trading Into Existing Aladdin Platform

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BlackRock

BlackRock (NYSE:BLK) has collaborated with electronic market-maker Tradeweb Markets to allow users of its proprietary risk and portfolio management platform, Aladdin, to manage, price and execute orders in the rates and derivatives markets. [1] The new addition to the popular platform, which is used by 20,000 investment professionals worldwide, aims to bridge the liquidity gap created in the rates market following a retreat by banks working towards stricter capital requirements. [2] With proprietary trading desks at major investment banks shuttering over recent years, investors have lost an important source of live prices as well as ready liquidity across markets. BlackRock is looking to step in with an integrated platform that can address this demand.

As a part of the tie-up, Aladdin users can view real-time prices for a number of fixed-income and derivative securities including U.S. Treasury bonds, European, Japanese and Australian government bonds, U.S. mortgage and agency debt as well as for interest rate swaps from more than 40 liquidity providers on Tradeweb’s network. ((BlackRock signals bond trading shake-up, Financial Times, May 14 2014)) Investors can now also place their orders in Aladdin, considerably improving the overall efficiency of the trading system.

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This tie-up follows a similar one by BlackRock with electronic market-maker MarketAxess last April, for access to U.S. credit market data in Aladdin. [3] BlackRock is expected to continue its focus on Aladdin in the near future to boost revenues from advisory services in the long run. We maintain our $333 price estimate for BlackRock’s stock, which is about 10% ahead of the current market price, as we already forecast an optimistic 7-8% annual growth in revenues for BlackRock’s advisory services unit over the coming years.

See our full analysis for BlackRock

BlackRock Solutions (BRS) houses the asset management giant’s Aladdin, Financial Markets Advisory and Client Solutions units and provides clients with tools to help them manage their portfolio-related risk and come up with customized long-term investment strategies. As seen in the chart above, our analysis of BlackRock attributes roughly 6% of the company’s total value to the advisory unit, which is a steady source of income – bringing in $577 million in revenues last year. But more importantly, it unlocks an important cross-sell opportunity for the company to push its popular iShares ETF offerings to clients.

The Aladdin platform is the crux of the advisory services offering, as it integrates the risk- and portfolio-management tools BlackRock has to offer in an easy-to-use form for clients. This is why BlackRock has been intent on expanding Aladdin’s capabilities to increase its adoption among institutional investors. The decreasing liquidity in the debt market presented BlackRock with an opportunity to do exactly that, and the firm followed it up with the recently announced partnership with Tradeweb.

By integrating the ability to directly trade in several debt markets from the Aladdin terminal, BlackRock offers its clients a system that is much more efficient than the older process that required them to get quotes from dealers and then execute their orders externally. While BlackRock looks to gain from an expanding adoption base for its platform, Tradeweb will benefit from an increase in trading activity on its network. You can understand the impact of changes in advisory services revenues on BlackRock’s share price by making changes to the chart below.

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Notes:
  1. BlackRock and Tradeweb to Create a Fully Integrated Electronic Rates Trading Solution, Tradeweb Press Releases, May 14 2014 []
  2. Aladdin Platform Overview, Aladdin Website []
  3. BlackRock and MarketAxess Announce the Creation of a Unified, Electronic Trading Solution in the U.S. Credit Markets, MarketAxess Press Releases, Apr 23 2013 []