With so many financial and digital trends coming to Europe from the US, it’s likely the top European banks will be keeping a close eye on the corporate bond trading platform launched by the US contingent of Goldman Sachs and JPMorgan Chase.
The new platform aim at raising working capital, due to launch this July, is made possible by a partnership between at least 10 market-leading banks and the Thomas Reuters’ owned online trading hub Tradeweb. It will allow investors to see multi-dealer activity and conveniently exchange large amounts of corporate bonds.
It is hoped to reinvigorate the liquidity trading market, which has been stalled due to post-crisis regulations. Banks are no longer allowed to act as intermediaries, so buyers have to find real bondholders with an inventory they’re prepared to sell. Naturally, electronic trading could help to facilitate these connections.
“We have listened to asset managers and have gathered the support of major liquidity providers,” said Tradeweb CEO Lee Olesky of the new platform. The global online marketplace already hosts trades for government bonds, mortgage securities and investor-dealer derivatives.
The move would give investors improved ability and transparency for raising working capital in the bond market and allow firms to generate debt price quotes electronically. Mary Jo White, the US Securities and Exchange Commission chairman, said this is favourable to the prominent fixed-income markets, which “remain highly decentralised, occurring primarily through dealers, where costs of intermediation are much more difficult to measure than in other, more transparent venues”.
The only cost for banks to use the service is a small subscription fee, as Tradeweb has sold additional shares to fund the platform instead of requesting additional working capital from its partners. Tradeweb clearly has confidence in its model, as it demands that dealers stream a minimum number of price quotes and promises investors a 95 per cent chance of filling their orders.
And there is already peripheral movement in the UK market, with financial technology start-up Algomi offering banks plug-in software that analyses trade history and new issuance records to find bond order matches. Deutsche Bank, HSBC, Nomura and Six Swiss Exchange have already signed up. Michael Schmidt, Algomi chairman and former co-head of European credit trading at UBS, said:
“Banks are now one of the last industries that are changing into an information-driven business because they have to. If rules and regulations hadn’t changed, they would probably have continued to trade the way they used to.”
Algomi’s software is also expected to expand its offering to support buy-side asset managers for raising working capital before the year is out.