Tag Archives: electronic bond trading

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Morgan Stanley Ratchets Up Electronic Bond Trading Team

Morgan Stanley Raises Its Hand and Appoints e-Trading Veteran to lead investment bank’s scheme for the Electronification of Fixed Income Markets. Electronic bond trading has long been a holy grail for certain folks in and around Wall Street. On the one hand, reducing head count and mitigating dependence on high-paid sales people as opposed to ‘electronifying’ the trade inquiry and execution process makes sense and save dollars. For buy-sider players, the notion of increased transparency for instruments that have historically traded ‘over-the-market’ has been widely embraced by institutional investors, albeit many buy-side bond traders have encountered logistical, cultural, and arguably, political challenges when it comes to utilizing electronic trading tools. Without counting the number of independent e-bond exchange initiatives launched (and languished) in both the US and Europe since the turn of the century (a number that extends into the several dozens), the major banks have long insisted that bond trading is their domain alone and the concept of a centralized exchange platform is generally counter-intuitive to sell-side bond traders. Other than select legacy platforms whose initial backing (and liquidity) came from a consortium of banks (such as Market Axess and prior to that, BrokerTec), the six-pack banks have been reticent to join hands and to better ‘normalize’ bond trading in an electronic manner similar to other asset classes. Instead, everyone, including established exchanges, including the NYSE have aimed at building their own playing fields.

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Phil Allison, “Captain Morgan’s” new Head of Automated Fixed Income Trading

(Bloomberg) — Morgan Stanley, which has recently thrown down its own gauntlet to advance electronic fixed income tools hired Phil Allison, previously of KCG Holdings Inc., to lead the automation of its fixed-income business. Allison will head fixed-income automated trading and report to Sam Kellie-Smith, according to a memo sent to staff Monday.

He was most recently the chief executive officer of KCG Europe, a high-speed trading business that was acquired last year by Virtu Financial Inc. Allison, who became chief executive of KCG’s European business in September 2014, purportedly received a golden parachute payment of up to $7m when he was tossed out the door when Virtu took over KCG. He was previously the global head of cash equities at UBS Group AG.

Automating bond trading is a “major priority” after Morgan Stanley succeeded in digitizing stock trades, helping it become the top equities shop globally, CEO James Gorman said earlier this month. Fixed-income businesses have been harder to switch, partly because of the market’s lower liquidity.

Morgan Stanley has been finding ways to incorporate its electronic-trading technology, known as MSET, into the bond- trading business. Kellie-Smith, who previously led equities, was picked in 2016 to revamp the fixed-income business after the bank reduced the unit’s headcount by about 25 percent.   Allison worked at UBS from 1997 to 2014, developing statistical models and playing a leading role in algorithmic trading and automated market-making.

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Fixed Income FinTech Chapter 14: More e-Trading Platforms for US Govt Bonds

The US Government Bond Market is set to explode…with more e-trading systems.. MarketsMuse Tech Talk continues its curating of fintech stories from the world of fixed income and today’s update is courtesy of WSJ’s Katy Burne, who does a superb job (as always) in summarizing the latest assortment of US Government bond “e-trading” initiatives. MarketsMuse editor note: The financial marketplace is now littered with electronic trading platforms ostensibly designed to enhance liquidity and address the needs of respective market participants.

The once-revered premise of electronifying old-fashioned, non-transparent OTC markets so as to make them fully transparent and in turn, enhance liquidity in a manner that would inspire institutional investors to increase use of those products has, according to many, morphed into a ethernet rat’s nest. There are now almost as many of flavors of institutional electronic trading platforms as there are ice cream flavors from by Ben & Jerry’s and Baskin Robbins combined. Most if not all are ‘accelerated’ thanks to the innovation of rebate schemes, payment for order flow menus, and of course, high-frequency trading (HFT) applications, which has made the market structure more akin to a continuous “Battle of the Transformers.”

Despite the rising concern  on the part of both institutional investors and regulators as to the impact of market fragmentation (the latter of whom are easily-cajoled by the phalanx of lobbyists and special interest groups),  the Genie is not only out of the bottle, it’s reach continues…and the US Govt bond market is, according to those leading the initiatives described below, ripe for ‘innovation,’  for two good reasons. The first is the widely-shared belief that the rates market, which has been mostly range bound for several years thanks to the assortment of QE programs and lackluster economic recovery. is now anticipating a major uptick in volatility, which is a trader’s favorite friend. Secondly, the role of major investment bank trading desks, once ‘controlled’ the market for government bonds, has become severely diminished consequent to Dodd-Frank and the regulatory regime governing those banks and the financial markets at large.

Here’s the opening excerpt from Katy Burne’s column “Antiquated Treasury Trade Draws Upstarts”..

A host of companies are vying to set up new electronic networks for trading U.S. Treasurys, the latest upheaval in a $12.5 trillion market already being reshaped by some large banks’ pullback and the growth of fast-trading firms.

The efforts highlight the shifting role of banks, and gyrations in the market as the Federal Reserve prepares to lift interest rates in the months ahead.

Traditional Treasury trading is now widely viewed as “antiquated and rigid,” said David Light, a former head of government-bond sales at Citigroup and co-founder of CrossRate Technologies LLC, which is launching one of the new venues. “It simply did not evolve with all the changes in technology and regulation.”

Currently, there are two main channels for trading Treasurys on screens. Banks trade opposite their asset manager and hedge fund clients, with identities disclosed, via either Bloomberg LP or Tradeweb Markets LLC.

The banks then trade with other banks and professional investors anonymously, in exchange-like systems on either BrokerTec, owned by broker ICAP PLC, or eSpeed, owned by Nasdaq OMX Group. The banks trade with other banks in a wholesale market on one set of prices; they trade with customers on another set of prices. Continue reading

Chapter 5: Electronic Corporate Bond Trading—Do I See a Chapter 6?

Same story, different day..’electronifying the corporate bond market’. . Folks have been looking for this Holy Grail for the past 20 years..That’s right..other than Bloomberg’s 1990’s system, a company named BondNet was the first to launch a web-based platform. That was an independent IDB platform created by some very innovative folks who got put into the penalty box when it was announced they would allow buyside managers to access it.Then Came Market Axess with their corporate bond offering (which was sponsored by a consortium of BDs and provided 2 different levels…one for the wholesale market (BDs) and the other for buyside…no need to guess why there were 2 levels of access…because there were 2 levels of prices displayed…Duh..that’s how the corporate bond market works, silly!

At the same time that BondNet and MarketAxess were getting their feet wet, TradeWeb was already in 2nd gear with their US Treasury bond offering…Great technology..great pioneers……Well, 20 yrs flash forward and TradeWeb..which had judiciously avoided going down a path that was full of torn limbs, is trying to steal corporate bond thunder from MarketAxess. TradeWeb’s focus is on the meat i.e. trade sizes of $1mil bonds and greater—while MarketAxess is somewhat stuck in the odd-lot land…not because they haven’t tried to get larger block orders, but because the culture of the corporate bond landscape is not friendly to trading blocks on a live screen… 

That said, the WSJ thought it only fair to give TradeWeb some publicity via a very complimentary profile their current capo di tutti…Here is the opening of that story:

Can one man drag corporate-bond trading into a new age, where others have failed?

Meet Mehra “Cactus” Raazi, a former salesman from Goldman Sachs Group Inc., who has been working to do just that at fixed-income technology operator Tradeweb Markets LLC.

The New York firm is counting on Mr. Raazi as the frontman for its new electronic bond-trading system, an effort to bring the corporate-bond world into the 21st century. It has charged him with drumming up interest among asset managers and hedge funds for a system it says will enable easier and cheaper trading in U.S. corporate debt.

While trading technology can be humdrum, Mr. Raazi is anything but. Tall and athletic, with chiseled features, a neat crop of salt-and-pepper hair and a taste for custom motorcycles, he sometimes sports an ascot with skulls on it or a leather wristband featuring silver skulls. He practices the combat sport muay thai and has a stake in a lower Manhattan late-night burlesque club, The Box, said people familiar with his activities.

“He comes off very polished,” said Michael Adams, managing director at Sandler O’Neill + Partners LP, who saw Tradeweb’s new platform in the fall.

Whether the new platform, and Mr. Raazi’s efforts to sell it, will succeed still is uncertain, according to traders and analysts. Tradeweb has been silent on any progress it has made so far.

That is despite investors calling for more efficiencies amid shrinking stockpiles of bonds at securities dealers. For years, electronic trading has remained a fraction of the $7.7 trillion U.S. corporate-bond market. Instead, much of the trading is done over the phone.

Only about 15% of corporate-bond trading in the U.S. between investors and dealers is conducted electronically today, up from about 8% in 2010, according to bond-platform owner MarketAxess Holdings Inc., which has the vast majority of that volume.

Appetite is rampant among startups, exchanges and others to find the magic formula that can boost that share of electronic trading, because of the vast sums to be made from becoming the dominant player.

As many as 18 new companies are in various stages of launching competing platforms this year in the U.S., according to researcher Greenwich Associates.

“We’re not coming at this thing with a crystal ball,” said Tradeweb’s Chief Executive Lee Olesky in a briefing with reporters in the fall. Mr. Raazi declined to comment for this article through a spokesman.

Tradeweb’s effort has powerful backers in the 11 banks that co-own the company, including four of the big U.S. bond dealers: Bank of America Merrill Lynch, Citigroup Inc., Goldman and J.P. Morgan Chase & Co.

But it faces significant headwinds, as shown by the failure of numerous recent bond-platform launches, including at least two previous attempts by Tradeweb in the U.S. Past efforts have foundered for a variety of reasons, including that old trading habits are slow to change.

Advancing the workings of corporate-bond trading is the latest challenge facing issuers and investors. A doubling of issuance volumes since the financial crisis has vastly expanded U.S. corporate-debt securities outstanding to $1.46 trillion at the end of 2014, from $707.2 billion at the end of 2008, according to the Securities Industry and Financial Markets Association. Yet liquidity, reflecting the capacity to buy or sell securities quickly at a reasonable price, has retreated, traders say.

Into this breach steps Mr. Raazi, who is 44 years old and was educated in California. In 2007, Goldman praised him for swiftly closing out $1.2 billion of bets against souring mortgage securities. In 2010, a Senate subcommittee probing banks’ role in the U.S. housing crisis released a March 2007 email in which a Goldman executive lauded Mr. Raazi’s timely trading. “Cactus Delivers” was the subject line.

For the entire article from WSJ, click here

bond trading platform, RVQB

Fixed Income Trading Technology Part 5-RVQB Throws Hat in the Ring of Sell-Side Only Systems

MarketMuse update courtesy of repurpose from Brokerdealer.com, originally from Traders Magazine, one of the sell-side’s  top publications.

Quantitative Brokers and RiskVal have formed a partnership to create and deliver a fixed income trading platform, called RVQB.

The new sellside bond trading platform “combines powerful real-time analytics with seamless access to QB algorithms for best execution,” according to a press statement. Quantitative Brokers is a provider of agency algorithms for fixed income and futures markets. RiskVal Financial Solutions is a trading analytics and real-time risk management provider.

The RVQB platform integrates QB algorithms and RiskVal trading analytics and aims “to provide traders with real-time control and transparency into their outright and relative value executions.” The solution provides the bond trader with screens that can route orders to Legger, QB’s multi-leg execution strategy, for basis and relative value trading. During a demonstration of the trading platform in Manhattan yesterday, a bond trader can fill in a single trade with reduced keystrokes and data entry.

QB’s Legger algorithm executes user-defined structures with any ratio and number of legs across cash US Treasury and futures markets. A transactional cost analysis report is generated for each execution, providing full post-trade transparency on the order and slippage performance.

“Fixed income traders are continually looking for better ways to actively manage their enterprise-wide risk,” said Christian Hauff, CEO and co-founder of QB. “By marrying QB’s best execution algorithms with RiskVal’s proven relative value analytics, we have created a unique platform that integrates powerful trade discovery with superior execution tools.”

“The fixed income markets are rapidly evolving, and traders are seeking access to smarter and more transparent execution,” said Jordan Hu, founder and CEO of RiskVal. “As the market structure evolution continues, we are excited to address some of the key issues that fixed income traders face in the move to a more electronically-driven model.”

In 2014, both FINRA and the SEC approved QB as a broker-dealer for government securities.

Here We Go Again: OpenBondX Proposes Launch of Another Electronic Bond Trading Platform

While contemplating today’s news release profiling the proposed launch of the latest corporate bond electronic trading platform “OpenBondX,” MarketsMuse senior editors respectfully borrow Yogi Berra’s best line  “It’s like déjà vu all over again.” But for those too young to remember that most famous Yankee, we’ll toss you a softball: “Here we go, yet one more hat thrown in to the ring of electronifying the corporate bond market. We’ve almost lost count as to the number of initiatives that aspire to change the dynamics of buying and selling corporate bonds within the institutional marketplace, but the good news is this group is apparently not deterred by the number that have tried and failed to crack the cultural egg typical to those focused on fixed income trading.”

OpenBondX (OBX), an Alternative Trading System (ATS) upstart, unveiled plans to revamp its electronic bond trading in Q1 2015 with its new systems launch for both non-traditional and traditional providers.

The platform offers liquidity access via bond markets in the company’s first multi-tiered system. OBX’s ATS system targets both buy and sell-side participants, given the acute need for a platform that bridges institutional bond traders and natural liquidity suppliers in tandem.

At present, the landscape of corporate bond traders has changed due to shifting regulatory requirements and capital rules that has led to the mitigation of inventories by approximately 70% since 2008, according to GreySpark Partners’ estimates. The firm estimates that in 2014, buy-side firms held 96% to 99% of the U.S. corporate bond inventory in 2014.

According to OBX cofounder and CEO Alistair Brown in a recent statement on the platform, “every facet of OpenBondX and its technology have been built from the ground up to encourage providers to contribute liquidity and safely expose orders to the most aggressive pricing available, all under absolute anonymity.”

“By automating the bond markets as such and attracting liquidity from non-traditional providers, we believe our ATS will drive true two-way markets and significantly reduce trading costs,” he added.

Liquidity Fragmentation

The primary draw of OBX’s platform is its ambition to unlock fragmented liquidity, which aims to stymie information leakage and negative pricing issues that has become endemic in fixed income markets.

Helping to that end is a robust array of internal risk controls to aid market participants. As such, real-time utilities such as value-at-risk (VAR) validation on executed trades and open orders, aggregate value traded, duplicate order check and user access controls are afforded.

OBX has revealed a launch date for Q1 2015, with fully compatible trading for all US corporate bonds.