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Rise of Bond ETFs Mean Little Mourning for the Middlemen – FT

Full Article: Financial Times

ETFs have become the easiest way for US and European investors to trade bond risk without a middleman. The bond ETF is adding liquidity, sharpening price discovery, and reducing pressure on banks’ balance sheets, especially under stress 

Comments
  • Merlin
    MerlinDecember 9, 2016"Here is something to think about. How do you value a corporate bond ETF if there are no underlying markets/prices in the bonds making up the ETF???? By definition do the ETF market makers also become the de facto market makers for the underlyings as opposed to today where many of the AP's activity is dominated by taking liquidity?…"
  • Goose
    GooseDecember 9, 2016"Exchange traded ETF’s bring together retail and institutional interest in a myriad of investment strategies across several adjacent FI products. I believe that has to drive flow downstream for larger outright and complex cash trades. Long term plus for the “middlemen”, whomever they may be. Their business model may evolve, but you will need them more than ever.…"
  • Wolfman
    WolfmanDecember 9, 2016"There's no doubt that ETFs are having an impact on trading activity in fixed income, but it seems to me that the underlying processes of creation and redemption will generate activity in the underlyings as well as "upstairs" block ETF trades put together by brokers.…"
Businessman beckoning you with finger to come here isolated on white background

Sellside to join Liquidnet as they warm to fixed income fintech (Reuters)

Full Article: Reuters

Electronic trading venue Liquidnet will sign sellside firms to its fixed income platform in the next few weeks, a significant shift from a buyside only model as banks become more receptive to the all-to-all concept.

Comments
  • Slider
    SliderDecember 5, 2016"Agree with everyone else here. Doubtful there will be much liquidity without the big dealers as is always the case. I am also curious as to the fee structure as well.…"
  • Merlin
    MerlinDecember 1, 2016"If there is one thing everyone has learned by now, it is that the major dealers have zero interest in supporting an all to all platform. In the article itself they even state, "Most of the sellside interest is coming from regional banks that perhaps don't have the global client networks" . No kidding that most (read ALL) of the interest is coming from 'regional banks' and let's be clear that when they say regional, they mean the non-major european banks, probably name…"
  • Jester
    JesterDecember 1, 2016"I absolutely love the headline for this article. Reuters, have you no shame? From what I can tell, this is simply a change in policy by Liquidnet to allow the sell-side access to their fixed income platform. What this article fails to mention is whether or not ANY DEALERS have actually joined. I am sure some will, but come on Reuters…..do better. Now what is so interesting about this development is it was a predictable as the winter solstice. Want to know why? Because…"
  • Wolfman
    WolfmanDecember 1, 2016"It seems that deep pockets will come in handy for this launch and I'm curious as to what the fee structures are. The industry in general bemoans the high fees associated with MA and if Liquidnet can survive months of on-boarding liquidity and can build up a business that lowers the cost of execution, they'll have a good chance of surviving. I don't think there's any doubt that there is room for new trading paradigms, but both dealers and buy-side firms are challenged…"
Rear view of a relaxing trader who is sitting in front of a trading station which consists of four screens with financial data. A concept of forex trading. New York panoramic view

ICAP’s Spencer Reboots Market Stalwart With Bet on Digital – Bloomberg

Full Article: Bloomberg

The interdealer broker is transforming itself from a noisy bazaar into a streamlined financial technology firm called NEX Group. The company is expanding beyond its traditional banking customers to attract pension funds, asset management firms and even corporate treasurers to its electronic trading platforms.

Comments
  • Slider
    SliderNovember 18, 2016"This makes complete sense given how inefficient and archaic the IDB market is. "Spencer is betting the house on committing everything to electronic platforms, No one else in the interdealer broker industry has done that before." No one has done it before because the industry would rather self-sabotage by resisting change than get with the program. Kudos to him for making a bold move in the right direction!…"
  • Goose
    GooseNovember 18, 2016"As this article discusses, this move by ICAP screams like a giant “FOR SALE” sign to me. Lose the complex, messy, contract laden, potential lawsuit, overlap of the voice business. “Stitch together a mosaic of existing and developing systems and programs to deliver”. Streamline the technology offering to cut costs and improve interoperability. On the execution side, I believe the margins/marketshare of incumbent electronic execution businesses are only going to come un…"
  • Jester
    JesterNovember 18, 2016"This strategy by ICAP….excuse me, NEX, makes one of two assumptions. 1) NEX can build a formidable tool kit of electronic market solutions which would eventually turn the company into an attractive takeover target for larger players Not a bad idea and not without precedent. It was not too long ago that NASDAQ purchased a platform from an ICAP competitor for over a billion dollars, so yes Virginia, there is a Santa Claus. Hopefully, any potential NEX suitors don’t pay…"
  • Wolfman
    WolfmanNovember 18, 2016"A brilliant move to position NEX for a buyout and reach for high margin business lines. There are risks, however, when moving a company into a utility space. With continued standardization of formats and an increasingly cost-constrained customer base, building for-profit utilities may prove to be a daunting exercise. Is Spencer up for it? Absolutely! Will the tens of millions of dollars being spent by Silicon and Valley and Alley to develop technologies like distribut…"
Businessman tearing contract

Trump’s Transition Team Pledges to Dismantle Dodd-Frank – Bloomberg

Full Article: Bloomberg

“The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.”

Comments
  • Wolfman
    WolfmanNovember 12, 2016"There are numerous components of DF that have little to do with improving the safety and soundness of markets such as hiring quotas for banks. CLEARLY, there are also components that have improved the system and whose principals are shared among regulators globally. It seems to me that the FSOC will be reined in and the CFPB is likely to be removed, but don't be surprised if you also see Volker neutered and regulations lessened upon the smaller banks. Most people aren…"
  • Slider
    SliderNovember 11, 2016""Big banks got bigger," sounds like such a classic Trump 'talking point'. When you're measuring market cap, not the case. Are we going to keep going through boom and bust cycles? Are we EVER going to learn from our mistakes?…"
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Euronext and Algomi Look to Deepen Bond Liquidity – Markets Media

Full Article: Markets Media

Dealers will be able to access the trading interface either directly through their existing Algomi technology or their stand-alone systems. The MTF will use algorithmic smart matching processes to create an auction between dealers to improve liquidity and search for best execution.

Comments
  • Iceman
    IcemanNovember 6, 2016"Very interesting point on the SIX work that has been going on with Algomi and how this will be coexist. On the face of it being linked to both SIX (for some years) and then flipping into Euronext and JV'ing to launch a competing issue does not seem like very ethical business practice. Even having the comment in the press release (not Switzerland) points to recognized issues although anyone with a cursory knowledge of SIX offering knows that it was not Swiss bonds. The…"
  • Merlin
    MerlinNovember 4, 2016"This article seems to confuse issues. This JV appears to be an IDB using dark pool fuzzy matching as its protocol. Which, if I am not mistaken, is identical to what SIX is running on the same Algomi technology. But the author then quotes 'market experts' on things such as; "..clients want tools and services to aggregate liquidity from all available sources, as well as flexible market structure models in order to ensure best execution and greater access to data". " ..t…"
  • Goose
    GooseNovember 4, 2016"From the high level of information given, this is a nice validation of a piece of the technology Algomi has built. Euronext gets access to tech that is not core to its current matching trading technology, Algomi gets a partner with a hell of a lot of counterparty connectivity. 2mm is barely pocket change for Euronext, so this doesn’t strike me as a ringing endorsement. Also given this and their similar deal with SIX, is this part of the technology where the true value…"
  • Stinger
    StingerNovember 4, 2016"This combination is very interesting, with Algomi having had a difficult time generating paying customers for its traditional business of information processing. The concept makes a lot of sense although I believe it is at odds with Algomi's originally stated goal of connecting, not trading. That said, it is hard to see $2.3mm going very far, and I hope Euronext is prepared to continue investing in the project. We have seen a bit of a shake out in this space with a ha…"
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A Handful of Giant Investors Have the Fate of the Bond Market in Their Hands – Business Insider

Full Article: Business Insider

The top five investment companies hold $264 billion in US high-yield bonds, according to a big report from Stephen Caprio and Matthew Mish at UBS. That’s equivalent to 20% of the market. The top 20 hold $605 billion, equivalent to 46%

Comments
  • Merlin
    MerlinOctober 28, 2016"Hi Wolfie, I am not sure I agree with point #3 stating that execution fees have been driven down due to technology. MarketAxess is trading what, 80,, 85, 90% of corporate bond volume in N.A. and don't think their fees have budged. And I am not aware of any of the existing ATS fees being reduced. I think maybe NYSE reduced fees but no one uses them anyways and Bloomberg didn't reduce theirs because they don't charge anything to begin with. I do agree that technology ha…"
  • Merlin
    MerlinOctober 28, 2016"The article makes already well know points. The question regarding the fate of the bond market is how these mutual funds actually manage their funds and if they are making appropriate changes to cushion themselves against an onslaught of potential redemptions. While carrying larger cash balances may be more prudent in terms of protecting their investors, there is negative incentive to do this as it materially reduces the return provided by the fund. While this is like…"
  • Goose
    GooseOctober 28, 2016"Agreed Slider. It was quite interesting how Blackrock enjoyed the asset growth banquet, but in 2014 began to voice their opinion on liquidity http://i.imgur.com/4rSna2d.gif Then the SEC began to consider the concept of regulating the buy side as significantly important finanancial institutions, and the message has become. http://stream1.gifsoup.com/view2/20141110/5135504/remain-calm-o.gif…"
  • Slider
    SliderOctober 28, 2016"I am continually hearing anecdotes of how the big funds are being allocated egregious shares of new issue deals which exacerbates this inequity. The market should now be considering the "too big to fail" theory as it relates to the buy-side it seems.…"
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Innovation and Evolution in the Fixed Income Market – Vanguard Report

Full Article: Vanguard Report

Vanguard believes that several key improvements will help electronic trading continue to evolve in ways that are most beneficial to investors. We strongly advocate for policies and practices that (1) limit the fragmentation of trading, (2) encourage direct interaction between buyers and sellers, (3) better link trading and order-management systems, (4) provide greater price transparency, and (5) protect against information leakage.

Comments
  • AndrewOctober 26, 2016"Unsurprisingly, Vanguard’s blueprint for improvement in the fixed income market (or should that be markets?) provides (5 ) broad, rational strategic recommendations. The recommendation to limit trading fragmentation, at first glance, looks potentially contradictory to the paper’s support for competition between innovative matching protocols. However, it may be that limiting fragmentation does not necessarily imply limiting the number of trading platforms. Rather, the…"
  • Goose
    GooseOctober 21, 2016"Thank you Vanguard. It’s a big positive to have another voice in the game, and a buy sider at that. I am still very suspect on banging the “all is well” gong on bid/offer spreads from the Fed Paper. Dedicated FNL’ers will know there were plenty of questions about the measurements and data set involved with some of those conclusions. http://www.fridaynewsletter.com/has-us-corporate-bond-market-liquidity-deteriorated-liberty-street-economics/ I would also strongly sugge…"
  • Wolfman
    WolfmanOctober 21, 2016"As usual, FN selects articles that require some thought. So much so In this case that I'm going to follow the Ignatian contemplation method and place myself into the story. For the buy-side, navigating through the profound regulation-driven changes in market structure without the assistance of counterparts willing to offset my risk with their capital is difficult to imagine. If I were in that position, I would likely be calling for a market structure that might replic…"
  • Stinger
    StingerOctober 21, 2016"Nice piece by Vanguard, doing a great job summarizing the state of play and identifying the main factors for success. I wonder if they are voting with their feet/business, and working with the platforms that cover their suggested points. There are platforms in the market that exactly hit what Vanguard is proposing. The buyside has a bad habit of saying one thing and not supporting it with their business - the traditional trading techniques and relationships are quite…"
Group of robots running along the corridor.

Bond Platforms Form Lobby Group to Tackle MiFID II – The Trade

Full Article: The Trade

EDMA said it will work with its members to develop collective views on regulatory developments impacting the electronic fixed-income trading sector. It has set out principles to guide its activity, which include ensuring open access and fair, transparent markets, diversity of electronic trading protocols and equivalent regulatory treatment of all electronic trading platforms.

Comments
  • Voodoo3
    Voodoo3October 14, 2016"David Bullen was formerly head of FI ebusiness (or something similar to that) at Citigroup. He has been consulting for various initiatives since leaving Citi 3/4 years agi and has been diligent in following theEuropean regulatory space and presenting/chairing/moderating at most industry events. Probably seen as more Rates than Credit and more Sell than Buy-side, he is probably an acceptable choice for this task if not a little bit too London-centric. One of his diffic…"
  • Voodoo3
    Voodoo3October 14, 2016"On paper a good initiative but can't help to be disappointed in how late the participants have come to the table, what Btec Europe is supposed to be contributing to this initiative with a sub 1% marketshare, why Bloomberg isn't there, why none of the new initiatives have been invited (arguably bringing to the table the less innovative firms in the industry!!!!), why no idbs and why only London based initiatives....so the hidden cynical side of me is thinking 'marketin…"
  • Slider
    SliderOctober 14, 2016"Who is David Bullen? Does anyone else find it odd that the article states that he has been appointed to lead this whole initiative but provides no detail about him?…"
  • Merlin
    MerlinOctober 14, 2016"While not a surprise that FI electronic trading venues want to have clarity on what is expected of them to operate within the confines of Mifid II, does anyone else find this quote strange from Mr. Bullen, "....EDMA members who together operate and run an essential component of European Financial markets...."? What exactly are they 'running'? They exist in only that they provide a service that market participants find useful. They are 'running' nothing. And while MTS…"
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FridayNewsletter Exclusive: Fixed Income Sales Workflow Systems – Some Assembly Required 

Full Article: FridayNewsletter

Unfortunately, despite the abundance of these market solutions, Sales Workflow Systems have yet to transform any of the corporate bond dealers that utilize them into the efficient, synergy-capturing, riskless-principal-trading powerhouses that they want to be.

Comments
  • Wolfman
    WolfmanOctober 7, 2016"Kudos to CodeStreet (and the author who was there at the beginning) for seeing the potential that SWS systems could have. These sorts of systems are completely necessary for any agency broker to find liquidity quickly (before her competitor does) and cheaply (have you noticed what's happened to broker commissions over the last 10 years?). There is an obvious example of where this has worked, and it's the secondary wholesale market. The interdealer brokers have been us…"
  • Mustang
    MustangOctober 7, 2016"Interesting piece co-authored by two people very much in the know. A few thoughts: 1. Necessity: If FI is an industry that requires people, then this alone will tell you whether an "SWS" is needed. Look to any other industry that requires salespeople to do a lot of heavy lifting and see if they use a "SWS". The answer is a resounding "yes"-- and these tools have been utilized for years. 2. Adoption: "SWS" tools are deeply integrated multi-user tools with inter-depende…"
  • Viper
    ViperOctober 6, 2016"Fixed income flow sales is desperately trying to protect whatever is left of the franchise. The franchise is supported by the new issue machine that is greased by the low interest rate environment. It's not only trying to compete with automation but with the shops that are more aggressive and are based on agency trading. The are willing to work for less bps and more aggressively. Resisting the change unfortunately has not been proved very successful by history. it hap…"
Old intelligent businessman ponders putting his hand on chin

Deutsche Bank, UBS, RBS Said to Mull Selling Tradeweb Stakes – Bloomberg

Full Article: Bloomberg

Deutsche Bank AG, UBS Group AG and Royal Bank of Scotland Group Plc are considering selling their minority stakes in Tradeweb Markets LLC, a bond and derivatives trading system, according to people familiar with the matter.

Comments
  • Merlin
    MerlinSeptember 30, 2016"I have to go with Hollywood on this one. TW, even with the burden of the dealers, has done a good job of expanding into a much broader product set than MarketAxess who still somehow manages to con both the buy and sell side into paying exorbitant access fees and transaction costs. At the same time, they missed and seem to continue to miss multiple opportunities to create a better value prop in NA credit and now are watching MKTX move into a Muni space that TW should h…"
  • Slider
    SliderSeptember 30, 2016"Piggybacking off Chipper's comment, to me, this is a classic example of how 'protectionist' culture eventually leads to a company's demise. Existing to slow down innovation is never a good business model! What will it take for the Fixed Income markets get religion on this?…"
  • ChipperSeptember 30, 2016"What is TW worth if the dealers no longer have a financial stake? I say not much. Yes, being out from under the thumb of the dealers may allow them to innovate, but the whole reason they exist is to slow down innovation in the OTC markets. It is very difficult for large firms to innovate and this is especially the case at TW. Why do I say that? Because they do not have a culture that rewards innovation. They have a culture that rewards protecting dealer market share.…"
  • Goose
    GooseSeptember 30, 2016"The themes of , regulation, lawsuits, financial health all tie into why this likely makes sense for these 3. Unfortunately for the 3, the cash generated from the sale is like putting a strand of scotch tape over end of a firehose. As Jester said, let’s see what the generals do. So maybe if they sell, Tradeweb gets to try to be more innovative. Unlike MKTX, the majority of TW markets are fairly liquid, and have well established potential competitors. The former owners…"