“The current fixed income trading environment is creating a ‘perfect storm’ for fixed income trading technology” from Mark Watters, Director of AxeTrading. I spoke about the fatal combination of regulatory changes, record low interest rates, continued strong bond issuance, and fragmented liquidity as the continuing challenges for fixed income traders both on the Buy and Sell side; in an earlier post about Algomi.
Over the past month, rates have spiked unexpectedly and strong signs of increased fragility in the fixed income market (sovereign and corporate) are well in place. There are all sorts of explanations floating around and the need for tech solutions is even stronger. Deutsche bank has been working on an in-house solution for years, through the Oasis project, but there has been no progress reported. Project Neptune is another collective effort backed by more than 25 financial institutions, to tackle the issue. It was occupying the headlines last year, as an ambitious plan for boosting liquidity in the European and U.S. corporate bond market. Earlier this year, they announced that both sell-side banks and buy-side institutions agreed to a common protocol for exchanging information about dealer inventory available in the market (see more details in Project Neptune completes bond market protocol).
This year, the Fintech market has showcased two new promising names, Algomi, and TruMid. Algomi we have covered and their Honeycomb product is much talked about after they won the Trading technology award from Risk magazine in the beginning of the year. Trumid, is really at the very early stage, but is attracting a lot of media attention because more than a dozen financial veterans are joining the effort. It is also for both buy and sell side and it allows users to transact anonymously. The system is focused on corporate bonds and Credit Default Swaps (CDS is a new focus).
Established players in the “enhance fixed-income liquidity trading platforms” are MarketAxess, Bloomberg, Tradeweb, KCG BondPoint, and MTS/Bonds.com (owned by the London Stock Exchange).
Other alternative players are:
AxeTrading (only one UK based)
VegaChi, a trading platform for convertibles and high yield bonds that got bought out last year by Liquidnet.
And lastly, E-trading pioneer ITG is beta testing POSIT Fixed Income.
This market is evolving and without getting into the technicalities of their features, it will be interesting to see whether disintermediation (customer-to-customer bond trading) wins over dealer crossing (dealer-to-customer trades but without warehousing the bonds). It is a question of percentages and which way the balance of market flows is directed.