Tag Archives: morgan stanley

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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.

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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

Symphony Scheme to Displace Bloomberg Chat is Challenged by Regulators

Fintech startup instant message platform Symphony is hearing the sound of trumpets coming from NY Regulators and Bloomberg-challenger backed by consortium of banks now being  questioned about deletion and encryption process.

MarketsMuse curators might be a little slow this week in view of following delayed post regarding the roll-out of the instant message chat platform built by a consortium of top banks and intended to displace their dependence on Bloomberg LP…but better late than never…As Symphony Communications Services prepares to launch its much-anticipated messaging service, New York’s financial regulator is raising questions about whether the system can assure that bank communication records will be preserved for overseers.  The following is courtesy of American Banker.

NY State Regulator Anthony Albanese
NY State Regulator Anthony Albanese

In a letter to Symphony CEO David Gurle (blog post title image), Acting Superintendent of the New York State Department of Financial Services Anthony Albanese asked for further information about Symphony’s document retention capabilities, policies and features.

Noting that “key evidence that regulators used to uncover and investigate” benchmark manipulation schemes has been found in chat rooms, Albanese expressed concern that some banks that are under investigation for rate-rigging are investors in Symphony and have indicated they plan to use it. The letter suggests that before firms begin using a new platform for market related communications, Albanese wants to be sure regulators will still be able to access and audit communications in the event that a firm may be involved in suspicious activity.

The regulator is taking particular interest in “data deletion, end-to-end-encryption, and open source features” of the Symphony platform, the letter said. Albanese said the department would also follow up with banks, requiring them to describe “how they will ensure that messages created using Symphony products will be retained.” The department said it plans to review banks’ responses about their plans to assess whether or not encryption could be used to obstruct regulatory and compliance review, whether firms plan to use deletion capabilities, and whether banks can ensure that employees won’t use open source capabilities “to circumvent compliance controls and regulatory review.”

In an emailed response, Symphony’s Gurley said the platform was designed with compliance in mind, and said the company plans to fully explain Symphony’s technology and its capabilities to regulators.

“Symphony is built on a foundation of security, compliance and privacy features that were built to enable our financial services and enterprise customers to meet their regulatory requirements,” the statement said, according to American Banker. “We look forward to explaining the various aspects of our communications platform to the New York Department of Financial Services.”

Led by Goldman, a group of financial firms invested $66 million in Symphony. The group, in turn, acquired Perzo Inc., a Palo Alto, Calif., company founded in 2012. Goldman, which led the investment among the financial firms, contributed its own internal-messaging developments to the venture.

In addition to Goldman, Bank of America Corp., Bank of New York Mellon Corp., BlackRock Inc., Citadel LLC, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, J.P. Morgan Chase & Co., Jefferies LLC, Maverick Capital Ltd., Morgan Stanley, Nomura Holdings Inc. and Wells Fargo & Co. invested in Symphony.

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Corporate Bond ETFs for Single Issuers??

MarketsMuse ETF and Fixed Income departments merge and gives credit to Morgan Stanley as they raise their own ETF flag with an innovative idea to package a single corporate bond issuer’s debt into one neat package so that ETF investors can express their bets on the issuer’s outstanding credit… Here’s the excerpt courtesy of Reuters:

 A bank proposal to pool corporate bonds of a single borrower into an ETF-style “trust” to help solve the credit markets’ chronic illiquidity problem is being circulated among issuers and investors, and finding some support.

Though still conceptual, the idea initiated by Morgan Stanley reckons investors could find more liquidity in a single instrument that represents several bonds issued by one borrower in a certain maturity, than in the individual bonds themselves.

According to the proposal, the trust would get positions in all of an issuer’s outstanding securities in the secondary market.

It would then group them according to whether they have short, intermediate or long-dated maturities, and issue separate trust certificates against each of those maturity buckets.

An underlying unit of bonds to represent each maturity trust certificate would be created and redeemed in a similar way as existing bond index exchange-traded funds.

To continue reading about Morgan Stanley’s new idea for an ETF, click here.