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 ,”At risk of infringing on any copyright that Yogi Berra might have, “It’s Deja Vu All Over Again.”
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
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. “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