Bringing voices together to promote well functioning markets
Every Friday, we send you an email of top articles related to corporate bond market development. The newsletter is a free service.
Live Chat Button on Modern Computer Keyboard. (v6)

Wall Street Startup Direct Match: We Will Not Be Able to Execute Our Vision Any Time Soon – Business Insider

Full Article: Business Insider

My greatest error was that I was so committed to altering the competitive landscape in the front-office that I did not adequately structure the firm to simultaneously attack the uncompetitive landscape in the back-office. 

Comments
  • Goose
    GooseAugust 29, 2016"I am really curious about the clearing side of this equation. Why are there no other tier one netting FICC member's who would handle this kind of business? I mean, being a clearing member you would want more business to clear, correct? Is it just the controversial business model, or economics, or intraday risk? Why doesn't FICC accept locked in trades like NSCC does, both are DTCC entities so it's not foreign ground. . I hope Mr. Greco does a follow up post explaining…"
  • Mustang
    MustangAugust 26, 2016"I commend DM for their effort. We need more competition and innovators in Fixed Income. My comments are not directed at them. Instead, it is directed at the screwed up market that we operate in. The largest issues in Fixed Income ATS proliferation strikes me as the following: Differentiation: there's not much differentiation between every single platform. Differences in protocol just aren't different nor defensible. If "ATS A" creates a protocol that works, then there…"
  • Sundown
    SundownAugust 26, 2016"I would like to preface this note by saying that I commend Mr. Greco for his efforts and willingness to find a solution to some of the liquidity issues in the U.S. Treasury market. I urge you to read Kevin McPartland of Greenwich Associates recent blogpost “Failure for the sake of Success”. It provides proper context for this discussion. Failure is never final, and often leads to needed innovation, however that is hardly a consolation to those who invested time and mo…"
  • Sundown
    SundownAugust 26, 2016"I would like to preface this note by saying that I commend Mr. Greco for his efforts and willingness to find a solution to some of the liquidity issues in the U.S. Treasury market. I urge you to read Kevin McPartland of Greenwich Associates recent blogpost “Failure for the sake of Success”. It provides proper context for this discussion. Failure is never final, and often leads to needed innovation, however that is hardly a consolation to those who invested time and mo…"
Close-up portrait of a young businessman peeking through blinds with magnifying glass in the office

Is the Future of Last Looks (in fixed income eTrading) Tied to Information? – FixTHub

Full Article: FixTHub

The real issue is that market participants don’t have all the consolidated information at the moment they need it to make immediate decisions.  Lack of consolidated information is hurting our market. 

Comments
  • Charlie
    CharlieAugust 19, 2016"Agree with your request for a definition of 'last look' here. We have said many times that the fixed income market is not the equity market and it would be good if regulators and participants stopped trying to push a square peg in a round hole. Having said that, I find that the FX practice is simply a way for traders to stack the deck a little more in their favor, perhaps it arises from trying to make prices good for a longer period of time than is feasible in reality…"
  • Goose
    GooseAugust 19, 2016"Interesting point Mustang. I think the key is looking at the state of equities today. The lit order books reflect the result of a fair access, anonymous, executable market. Off-exchange market share in July 2016 increased 2% month-over-month to 38.3%, the highest off-exchange market share since April 2010. The asymmetrical value proposition results in oddlot markets where market makers are paid to take the adverse risk. Equity markets have been in a constant experimen…"
  • Stinger
    StingerAugust 19, 2016"The term "Last Look" is a little confusing here. In my experience that refers to a client coming back to a dealer and giving them a chance to trade a bond at or better than the best price the client found in the market. I know that in some other markets such as FX, Last Look refers to a price being "subject," and not "firm," until confirmed a last time. Regarding this distinction in the bond markets, people with equity experience are always amused (or disappointed) th…"
  • Wolfman
    WolfmanAugust 19, 2016"Equities are a products designed for retail traders/investors whose numbers are in the tens of thousands on any given day. Fixed income as an asset class trades much less frequently and for very different trade objectives. Individual investors buy and hold fixed income because it's fixed income; they don't trade bonds for a potential profit. In addition, the structure of the bond market has, and may always have, the need for someone to warehouse bonds. Who does that i…"
milli-vanilli-600x450

A Tulip By Any Other Name: What Happened to the Big Bad CDS Market? – ViableMkts

Full Article: ViableMkts

In 2007, the market for Credit Default Swaps (CDS) was on a six year journey from relative obscurity, to being the hottest financial product in the world. The outstanding notional size of the market had grown from less than $1 Trillion in the beginning of 2001, to over $60 Trillion by the end of 2007, with no signs of stopping. Almost ten years later, the outstanding size of the CDS market is hovering just over $10 Trillion, the result of eight consecutive years of decline.

Comments
  • Mustang
    MustangAugust 13, 2016"One of the issues was that it wasn't a proxy for the underlying bonds. News would come out, CDS would blow out 20, 30, 50, 75 (or much more), bonds would be unchanged and then CDS would be flat again. So, what was it really tracking? It very much become the tail that wagged the dog.…"
  • Merlin
    MerlinAugust 13, 2016"Enjoyed the reminder, thanks. Jester seems a little harsh to me.  While much went wrong it seems enough change and innovation has taken place to allow the CDS market to continue to exist.  After all, there are a lot of use cases where utilizing the CDS market allows entities to optimize their risk profiles while meeting client needs. But the history is crazy. Circa 2004, every major financial institution had TENS OF THOUSANDS of unsettled trades on their books.  Not o…"
  • Jester
    JesterAugust 12, 2016"This article is very timely considering CS just sold their CDS portfolio which means yet another market maker is out of the business. At this point, how many dealers are left? GS, JPM, BAML, Citi? Am I missing anyone? Hedging risk must be a real problem when you only have 3 other dealers to turn to as a market maker. What has happened to the CDS market was inevitable because the product evolved to offer no real value to the financial market system. CDS is a financial…"
  • Wolfman
    WolfmanAugust 12, 2016"Great review of the CDS market by someone who was obviously surrounded by,or may have been one of, the key players. I'll talk a cue from the article and reference some great Marlon Brando quotes and oddly enough, it seems that they may apply to the people in the article. Never confuse the size of your paycheck with the size of your talent. The only reason I'm in Hollywood is that I don't have the moral courage to refuse the money. If you want something from an audienc…"
your fault

Now We Have Two Answers to the ECB Corporate Liquidity Question – Bloomberg

Full Article: Bloomberg

Now the ECB is in full throes of CSPP, which began June 8th, and disclosed information about its holdings on July 18th, we have the data to test out these liquidity fears. Firstly, a big caveat is in order. There’s no standard and objective measure of bond market liquidity since bonds are predominately traded over the counter (OTC), unlike stocks

Comments
  • Jester
    JesterAugust 7, 2016"This article and debate stops and starts with one key statement from this article: “Firstly, a big caveat is in order. There's no standard and objective measure of bond-market liquidity since bonds are predominately traded over the counter (OTC), unlike stocks. As a result, market benchmarks to gauge a snapshot of liquidity conditions — roughly defined as market participants' ability to buy and sell bonds, on a given stable trading day, without triggering a material s…"
  • Mustang
    MustangAugust 5, 2016"I'm also in the camp that they are creating a bigger liquidity problem. It's very hard to surmise that the ECB isn't creating a liquidity problem when the author correctly admits that: "Firstly, a big caveat is in order. There's no standard and objective measure of bond-market liquidity since bonds are predominately traded over the counter (OTC), unlike stocks. As a result, market benchmarks to gauge a snapshot of liquidity conditions — roughly defined as market parti…"
  • Goose
    GooseAugust 5, 2016"Like others, I am, um, very suspect that the emergence of the ultimate supertanker in the shallow waters of bond market liquidity will have no ill effect. Chart 2 seems to show a gradual widening of the non-eligible vs. the eligible and purchased. Crowding into the trade and the action, plus more trade data points to manage risk against, while the have nots suffer? Supertanker oil spills do severe damage to the ecosystems in which they operate.…"
  • Merlin
    MerlinAugust 5, 2016"I am in the camp viewing the ECB as creating a bigger liquidity problem. Not because they are competing with investors for bonds; in that regard they are just another player in the market, although a big one! But because the program has injected uncertainty into the market about which bonds it is buying/will buy and when they reach their max holding amount. Market makers and investors both now need to navigate this uncertainty in an attempt to determine the proper pri…"
Sentinel_Marvel_Vs

Project Sentinel Completes MiFID II Technology Specification – The Desk 

Full Article: The Desk

Project Sentinel, the bank collaboration to mutualise the cost of MiFID II implementation in the OTC front office, has completed the detailed business requirements that meet MiFID II regulatory obligations.

Comments
  • WolverineJuly 29, 2016"The emergence of this project clearly illustrates that the historical models of buying or building core banking technology on an individual basis, particularly for the purpose of fulfilling regulatory obligations, are no longer viable. Building individually is too expensive, carries no competitive advantage because everyone has essentially the same requirements, and carries too much risk of failure, which, when regulation is involved, is not an option. Buying individu…"
  • Leon
    LeonJuly 29, 2016"The one year delay has provided an opportunity for the market participants to think strategically on MiFID II implementation. There is a small windows – closing quickly – for organisations to collaborate together and think outside of the box. A difference between the majority of the collaborative initiatives and Sentinel is that MiFID II is not a nice-to-have and has a firm deadline: Wednesday 3rd of January 2018. Participants will be compliant but at what costs and w…"
  • Cholo
    CholoJuly 29, 2016"Inv.Banks have been too short sighted in terms of IT, and never wanted to share anything. Big mistake!!!! All of them are suffering on the cost side. It really makes a lot of sense to collaborate among like-minded banks, and share IP & IT cost in non alpha-generating / value differentiating activities. It really makes me wonder why nothing is happening on the Operations side…. A no-brainer would be to do something similar in BackOffice (collaboration / utility mod…"
  • Wolfman
    WolfmanJuly 29, 2016"Banks will always be reluctant to outsource their core competency, but there are myriad examples of coopetition when technological solutions are delivered. Banks generally don't build their own ATMs but do think of innovative ways to improve their customer experiences with them. SalesForce had become the ubiquitous CRM tool and I would suppose that with enough capital behind them, Sentinel can become a similar tool. I don't know what that does for companies that curre…"
Turning Sign

Morgan Stanley Profit Beats Estimates as Bond Trading Gains – Bloomberg

Full Article: Bloomberg

JPMorgan Chase & Co. kicked off earnings season last week by beating estimates as fixed-income trading revenue and loan growth jumped. Citigroup Inc. and Bank of America Corp. also exceeded estimates, while Wells Fargo & Co.’s results were in line with expectations. Goldman Sachs Group Inc. on Tuesday said net income surged 74 percent on gains in fixed-income trading and debt underwriting.

Comments
  • Goose
    GooseJuly 22, 2016"A positive report, and just having earnings stability going forward in this environment would be a big plus. However, since FNL is mainly focused on the top stories in the credit market, this statement gives plenty of pause, “Foreign exchange, commodities and securitized products were areas of strength within fixed income, particularly ahead of the Brexit vote, Chief Financial Officer Jonathan Pruzan said in an interview. Client activity has subsided since then, thoug…"
  • Hollywood
    HollywoodJuly 22, 2016"The article states: “Maybe on an annual basis we are closing in on a sustainable and predictable level” for fixed-income revenue, Kotowski said. “That would be a significant positive after years of grinding lower industrywide, but of course one needs more than one quarter to draw that conclusion firmly.” - Agreed - Small sample set from 1 market participant. Perhaps banks have re-balanced and found their sweet spot....time will tell. One thing for sure, Banks need to…"
Person Holding Magnifying Glass On Receipt With Red Circle Made On Total Amount

Bond World Grows Less Opaque – Bloomberg Gadfly 

Full Article: Bloomberg Gadfly

Starting Monday, the Financial Industry Regulatory Authority will include more information in its Trace bond-price reporting system to give a clearer sense of how much investors are paying traders in commissions for each transaction and the proportion of trades executed on electronic systems.

Comments
  • Voodoo3
    Voodoo3July 17, 2016"More data in 1s and 2s won't change the real structure of the market. This is noise rather than progress.…"
  • Jester
    JesterJuly 16, 2016"This article is one big bowl of assumptions, wrapped in a candy coated shell of myth topped with a cherry of a conclusion: Transparency is good for electronic trading, bad for big dealers. It is not the author’s fault, this is generally the feeling amongst many traditional market participants as well, even if the evidence is to the contrary. Here is the thing, if your business model is reliant on mark to market sorcery to create paper profits, then absolutely, transpa…"
  • Wolfman
    WolfmanJuly 16, 2016"Mother, mother ocean, after all these years I've found My occupational hazard being my occupation's just not around. Isn't it wonderful that the regulators want a component of market structure without really understanding the true impact?…"
Group Research

US Corporate Bond Market: What Year Is It? – ViableMkts 

Full Article: ViableMkts

Practitioners from “modernized” financial markets who have no experience in corporate bonds find the US corporate bond market structure to be an enigma. This is because the technology, architecture and cultural practices in the corporate bond market are years behind other markets…..but just how many years?

Comments
  • Mustang
    MustangJuly 15, 2016""You cannot create liquidity, but only try to ensure that all liquidity opportunities are actioned." In the current market, I wholeheartedly agree. I think too many are focused on creating new liquidity, when that seems like too huge of a lift. Instead, if we additionally focused on maximizing every possible liquidity point, we'd be in a better position. What good is a bid or an offer on some electronic platform if it's nearly impossible to find?…"
  • Merlin
    MerlinJuly 12, 2016"There are no inputs. These "real time" pricing feeds are a sham. You will never create an oddlot market where you can hedge roundlot trades. You cannot auto trade a roundlot market. I am not convinced you can auto trade an oddlot market successfully unless all you are doing is trading off of others prices. We have been trying to put a square peg in a round hole long enough. Can't everyone just go do their jobs? The market has and will continue to adjust to the current…"
  • matlami2016July 10, 2016"Completely agree - it's GIGO (garbage in garbage out) as far as these models go, right? The fundamental problem is lack of real-time reliable pricing inputs. And unlike, say, equities, the information to noise ratio of inputs from other markets (e.g. macro S&P 500, VIX, CDX.IG, ...) is very low. Having made that general comment, I would say though that if one were to focus on the most liquid bonds, I don't see why it is that difficult to have tradable real-time pr…"
  • Jester
    JesterJuly 10, 2016"Since you asked for thoughts, I will oblige. Yes, there are several vendors working on real-time pricing for corporate bonds, but there is a large gap between their pitch and the performative reality of data in this market. For example, Markit just announced the launch of their real-time pricing product with the promise of providing on demand pricing information on 35,000 CUSIPs. What their offering may provide in breadth it will most definitely lack in accuracy. Bott…"
Funny conductor in musical concept

BlackRock to Push Wall Street Chat Tool – 4 Traders 

Full Article: 4-Traders

BlackRock Inc. will urge banks, brokers and others who interact with it to communicate via a messaging platform backed by banks and investment firms called Symphony Communication Services LLC, according to people familiar with the matter

Comments
  • CelticBond
    CelticBondJuly 23, 2016"I agree with the comment & at $2k+ pm its a very expensive chat mechanism along with expensive analytics. Dealers must realise how much monies they gave away to BBG over the years & their own failures to build their own analytic deliveries.What could be interesting developments are new analytic entrants that are cheaper coupled with Symphony…"
  • Iceman
    IcemanJuly 2, 2016"As has been discussed a number of times a chat function itself is hardly ground breaking so Symphony needs to continue to develop their platform and adopt new features and functions that appeal to a broader cross section of the community. What is interesting is this still seems to be a closed system instead of the original ideal that was asked for by the very first investors who were looking for an open system to be inter operable. Perhaps it is to bigger a stretch to…"
  • Wolfman
    WolfmanJuly 1, 2016"So, most people will admit that 95% of what they use Bloomberg for is chat. If the BlackRock gorilla decides it will no longer permit their employees from chatting on Bloomberg, then the tide will have to shift. That's the bottom line. If he 5% non-chat usage is still essential to the particular Bloomberg user, Symphony has succeeded in increasing their cost instead of reducing it. Now, these are early days and who know what other services Symphony intends to offer (t…"
  • Goose
    GooseJuly 1, 2016"It’s not like Symphony is just a functionality release or two ahead of a similar technology and business model. There is a huge gulf between the technology, models, and delivery of Symphony and Bloomberg.. This is an inflection point on completely changing the delivery of fixed income communication. IF, and given the stakes it’s a big IF, Blackrock pushes ahead and IS the gorilla to build the Symphony external community, what is the response by Bloomberg? Its not just…"
Rating button positioned on the word excellent. Conceptual image for illustration of good customer service and client satisfaction.

Over Half of Buy Siders to Re-Evaluate Fixed Income Brokers – The Trade 

Full Article: The Trade

In the US, 64% of buy-siders named re-evaluating current broker relationships as the second top priority, with 68% saying implementing US regulatory guidelines is the most important priority

Comments
  • Merlin
    MerlinJune 24, 2016"Don't buy side accounts review their dealer relationships at least annually already? Are they doing it differently or more aggressively this year??? And are 64% saying it is their TOP priority or just a top priority? It would seem to make a big difference and the wording is not clear. But if we assume it is THE top priority, we get very little information on how they are actually evaluating their dealers. 18% selected 'cost effectiveness' as the #1 priority in selecti…"
  • Wolfman
    WolfmanJune 24, 2016"“Not surprisingly the focus is cost effectiveness, highlighting the on-going constraints buy-side actors are facing.” The dealer-to-client model is changing and new solutions are necessary. I get it. What's unclear to me is which forces will win out in this "becoming" that is happening. Companies will propose new solutions and if they can capture critical mass, they will succeed. We're inundated with new platforms to solve these problems, and in the past, getting the…"