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One More Corporate Bond Electronic Trading Platform; Still None Include Bond ETFs

Well Matilda, as if the universe of corporate bond electronic trading platforms isn’t crowded enough, despite clear signs of consolidation taking place for this still nascent stage industry (e.g. upstart Trumid’s recent acquisition of infant-stage Electronifie) , one more corporate bond e-trading platform has its cr0ss-hairs on the US market. The latest entrant is UK-based Neptune Networks, Ltd., a consortium controlled by sell-side investment banks that has inserted electronic trading veteran Grant Wilson as interim CEO. Neptune’s lead-in value proposition’ is perfecting the IOI approach to capturing liquidity, and also offers a tool kit of connectivity schemes that bridge buyside and sell-side players.

grant-wilson-neptune-networks
Grant Wilson, Interim CEO Neptune Networks

Promoting indication-of-interest orders ( pre-trade real-time AXE indications) as opposed to actionable bid-offer constructs that are ubiquitous to equity trading platforms, is a technique that other US-based corporate bond trading platforms are already advancing. Neptune is also not alone in their positioning an ‘all-to-all’ model as a means to inspire buy-side corporate credit PMs and traders to embrace electronic trading, a seemingly counter-culture technique that enables them to swim in the same pool as sell-side dealers aka market-makers. The distinction that Neptune brings to the table is girth and size, thanks to its sponsors Goldman Sachs, JP Morgan, Credit Suisse, Morgan Stanley, UBS, Citi and Deutsche Bank, each of which maintain board seats.  Unlike the other players in the space that are focused on building a “round lot marketplace” (as opposed to retail size orders that MarketAxxess (NASDAQ: MKTX) specializes in, Neptune carries over 14,000 individual ISINs daily, claims that its average order size is 5mm,  total daily gross notional in excess of $115bn, and according to Neptune’s marketing material, over 22,000 individual ISINs have been submitted to the platform since January 1st.

Lots of e-bond trading platforms, but none are incorporating bond ETFs, at least not yet.

As compelling as Neptune’s value proposition is, some corporate bond e-trading veterans are quietly wondering whether these initiatives are somehow missing the memos being circulated throughout the institutional investor community profiling the rapid adoption of corporate bond ETF products in lieu of their long-held focus on individual corporate credits.

According to e-bond trading veteran Jay Berkman, who helped launch BondNet in 1994 when it was the industry’s very first web-based exchange platform for investment grade and high yield bonds, and who now serves as an advisor to fintech merchant bank SenaHill Partners, the firm that has led early fund-raising rounds for  Trumid,  Electronifie and  EMbonds  (SenaHill also advised on the recent Trumid-Electronifie combination), “Anyone who follows the trends [and follows the money] can’t help but appreciate that a broad assortment of Tier 1 investment managers, RIA’s and even public pensions’ use of bond ETFs is increasing in magnitude by the week, not the quarter. Added Berkman, “If you’re operating an electronic exchange platform for corporate bonds, and your users are rapidly increasing their use of fixed income exchange-traded funds, having a module for ETFs would seem to be a natural next step.”

Others in the industry have suggested to MarketsMuse reporters that enabling users to trade the underlying constituents against the respective corporate bond cash index along with a module for create/redeem schemes, or even a means by Issuers can distribute new debt directly seems to make “too much sense.”  But then again, these same industry experts acknowledge the political landmines that would most assuredly be encountered by those trying to disrupt and innovate within corporate bond land are perhaps too much for those who need to prove their business models before aiming at new frontiers. Continue reading

FinTech Fire in the Hole- Bond Trading Platform Bondcube Blows Up

Introducing electronic trading to the corporate bond culture is not easy. Fintech initiatives have been trying to crack this egg for 20 years, each promoting the theory that enhanced transparency via electronic trading leads to enhanced corporate bond market liquidity, and ultimately, a robust marketplace for institutional traders to traffic corporate debt and/or via the classic inter-dealer broker business model.

So far, MarketAxxes, which launched in the late ’90s and is best known for bringing small size trades together (under $2mil notional) is one of few that have been able to survive. That said, electronifying the corporate bond market has witnessed several start-up cycles during the past two decades; this current decade counts more than one dozen initiatives; well, that count is “less one” when considering the following news from Finextra.com:

Bondcube, an electronic trading platform for corporate debt, has filed for liquidation just three months after going live.

The startup, backed by Europe’s largest exchange Deutsche Börse, was one of more than 30 new platforms that have emerged in the corporate bond market as a result of new regulations.

Under current capital rules, banks are restricted in the amount of corporate bonds they can hold on their balance sheet, despite the fact that the amount of outstanding corporate debt has risen by nearly 50% to $48 trillion since the financial crisis.

Bondcube and its fellow startups have tried to fill this gap in the bond market by providing buyers and sellers a centralised venue to trade electronically, akin to the various crossing platforms that have emerged in the equities market. The company’s CEO, former Citigroup trader Paul Reynolds, talked of the ambition to make Bondcube, the eBay of the fixed income market.

The problem has been that with so many platforms launching and the existence of longstanding incumbents like MarketAxess, some have struggled to gain the necessary traction.

In a statement, Deutsche Borse conceded that despite succeeding in launching, “sufficient business prospects failed to materialise” and consequently “the shareholders decided not provide further funding”.

Bondcube was formed in 2012 and launched in April this year. It completed its first trade in June, although there were signs that it may struggle for liquidity when a trader at UBS Wealth Management, one of the first participants on the platform, stated that it had taken more than two weeks to find a buyer on Bondcube.