Tag Archives: electronifie

Kumaresan Wave Labs electronic trading

Corporate Bond e-Trading: “It’s like déjà vu all over again.” The Latest Effort…

The never ending battle to electronify the secondary market for corporate bonds has yet another new entrant that aims to disintermediate corporate debt dealers that ‘control’ the trading in what has morphed from a $2trillion market to a $9 trillion marketplace during the last decade alone. As profiled by CNBC last week, the platform is called Wave Labs and its led by former Nordea Asset Mgt head trader and “fintech quant wonk”. Miles Kumaresan.  Wave Labs purportedly as a new sauce that distinguishes itself from the current generation’s e-bond trading platforms; its powered by AI and algorithms that select corporate bonds based on buyer’s criteria. How Wave Labs helps to address the needs of sellers –which is arguably a crucial feature for any electronic trading platform–wasn’t addressed in the CNBC story

As best said by MarketsMuse Senior Curator Jay Berkman, who was credited with being a co-founder and head of business development for the 1990’s era “BondNet” and arguably the first electronic trading platform for corporate bonds, “At risk of infringing on any copyright that Yogi Berra might have,  “It’s Deja Vu All Over Again.”

While BondNet may have had the best technology, its business model was flawed, according to Berkman. “The business was positioned as an inter-dealer broker when it should have been positioned as a utility owned by a consortium of dealers, who would otherwise have an incentive to provide liquidity. When attempting to move to the buy-side, the dealers put the company into the penalty box.”  MarketAxxes, which started after BondNet, had the right approach-which explains how/why it grew to what is now a multi-billion market cap company, even if its niche is mostly matching small size trades (under $5mil notional). That typical trade size

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Miles Kumaresan, CEO of Wave Labs

metric is illustrative of the obstacles that face any electronic platform that hopes to secure a presence in the corporate bond market. As one industry veteran pointed out, “Stocks are bought and [corporate] bonds are sold (by a salesman); if there’s a new black box that can actually pick the precise bonds that an institutional buyer wants, without having to deal with a salesman, that’s the holy grail.”

During the last 3-4 years, newbie disruptors who have sought to be the new kids on the bond block seeking to displace the role of bank trading desks have included among others, Liquidnet (whose pedigree is more tied to equities trading),Trumid, Electronifie, OpenBondX,  and EMBonds. Their respective value propositions are the same: since the crisis of 2008, when bank balance sheets were forced to scale down inventory holdings, bank trading desks have not been able to address the liquidity needs of the marketplace. Each of the new generations of bond trading platforms has cute features, the most common being peer-to-peer trading, “RFQ” (request-for-quote) and also, scheduled auctions, as opposed to continuous bid-offer actionable price streaming. Electronifie and Trumid -both represented by fintech merchant bank SenaHill Partners, combined within two years of their respective start-up phase, as both struggled to get past B Rounds for funding in the course of trying to get a foothold in the marketplace.

Per the CNBC coverage by Hugh Son (@hugh_son), “Leaning on his quirky charm and the bravado of a true believer, Kumaresan says he has gotten meetings with some of the world’s biggest asset managers. He mentions their names — giants in the industry — and then requests that they stay out of print. As he tells it, the demonstrations of his prototype usually end abruptly as executives gush over its potential.”

One could argue those conversations end abruptly because Wave Labs is just the latest wave. As Berkman suggests, “Kumaresan might be better off tuning into Kevin O’Leary, the CNBC pundit and notorious Shark from ABC’s “Shark Tank”, and consider licensing his technology to MarketAxxes or TradeWeb–as they’ve already got the most important two elements: credibility and customers.”

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For the full story about Wave Labs, “This quant says his tiny start-up is about to blow up Wall Street’s $8 trillion bond trading monopoly” click here

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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

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Thiel-backed e-Bond Trading Platform Trumid Rolling Up w Electronifie; 1+1=3

The notoriously fragmented universe of upstart electronic bond trading platforms that aim to address “the lack of liquidity” concerns voiced by institutional fund managers and deliver e-bond trading tools that enhance transparency and make trading fixed income products easier for buysiders is starting to consolidate. This week Trumid, founded in 2014 and funded by among others VC icon Peter Thiel and investor George Soros announced the acquisition of competitor Electronifie, founded by former Goldman Sachs ‘braniac’ fixed income trader Amar Kuchinad.  Electronifie, also founded in 2014 has been fixed on delivering an “all-to-all” round-lot trading platform for investment grade corporate bonds.

Fintech merchant bank SenaHill Partners, which spearheaded the initial funding round for Trumid during its startup phase and was later engaged by Electronifie to assist in identifying strategic investors, brought the two companies together for transaction.  SenaHill Securities served as financial and strategic adviser to Electronifie in the transaction. Upon closing, over 350 institutions will be on board Trumid Market Center, the company’s all-to-all trading network for corporate bonds. This includes 20 of the top 25 asset managers in the world and 60 broker-dealers. Following a regulatory approval process, Trumid expects the transaction to close early in the second quarter of 2017. Terms of the transaction were not disclosed.

ebond-trading Trumid acquires Electronifie
Electronifie Founder Amar Kuchinad (l) Trumid President Mike Sobel (r)

“We pride ourselves on building a strong user network and delivering great products that make corporate bond trading easier. Trumid continuously strives to improve all aspects of our clients’ trading experience,” says Mike Sobel, president of Trumid. “The Electonifie team shares that vision and the combination of our networks will enhance the all-to-all liquidity available on the Trumid platform.”

Trumid recently closed a USD28 million capital raise, with participation from existing lead investors Thiel and Soros, as well as from new partners including CreditEase Fintech Investment Fund. With this capital, Trumid will continue to proactively grow and improve its offering, including its data science effort Trumid Labs, expansion of its salesforce, and development of new products.

According to e-bond trading pioneer Jay Berkman, a SenaHill Network Advisory Board member, who in 1994 helped introduce BondNet, the industry’s first web-based, inter-dealer electronic trading platform for corporate bonds, stated “As evidenced by the nearly two-dozen initiatives launched during the past 4-5 years alone, there’s been no shortage of smart folks who recognize the need for a centralized platform in which corporate bond market participants can transact in an efficient manner, particularly in the Dodd-Frank world in which the role of liquidity-providing sell-side dealers has been greatly diminished.” Added Berkman, “The plethora of platforms launched during the recent decade has created further fragmentation within an already-fragmented marketplace, so now it makes perfect sense for there to be a consolidation. This deal is a clear sign that roll-up schemes, where the vision that 1+1=3 is the next logical step for those who embrace the view that electronification of bond trading is good thing.” Continue reading

Electronifying Corporate Bond Trading Chapter 12: Electronifie

MarketsMuse.com merges Fixed Income and FinTech with continuing coverage of the corporate bond market’s effort to evolutionize via electronification with a focus on yet the latest innovator initiative courtesy of Goldman Sachs alumni Amar Kuchinad and his start-up“Electronofie.” Our hats are off in salute to the catchy company name and extracts below are courtesy of recent profile in Fortune Magazine. Roger Daltry adds: “Dealers, Can You Hear Me?” Or, As Victor Hugo once wrote, “nothing is stronger than an idea whose time has come.”

Fortune Mag’s Shawn Tulley “takes it away” starting here:

It sure looks like the Golden Age for bonds. The $7.7 trillion U.S. corporate fixed income market is the largest source of liquidity on the planet for companies, and individual investors, pension funds, and endowments are flocking to bonds as never before.

So it’s hard to believe that anything this important could be so trapped in the past. At America’s biggest, most-tech savvy asset managers, traders speed-dial their favorite Wall Street salesman to place their biggest orders over their trademark headphones, just as in the Liar’s Poker era. The electronic platforms that transformed the equity markets decades ago mainly never arrived for the bond market. Relative to stocks, big-ticket fixed-income trading is stuck in the Stone Age.

Naturally, the beneficiaries are the investment banks who charge fat markups and, frequently, their hedge fund clients, who feast off of the constant leaks on who’s buying and selling big chunks of bonds, information that Wall Street firms use to cement their most lucrative relationships. Continue reading