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.
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…"
broken audio cassette with tape close up

When Keepin It Old School Goes Wrong: Debating Transparency in FI Markets – ViableMkts

Full Article: ViableMkts

Complaints and fears about mandated transparency are warranted, but eliminating or preventing transparency also requires examination. In theory, limited transparency should encourage robust market making activity due to the commercial opportunity available in an inefficient environment. In practice, lack of transparency is the root cause of some of the largest systemic issues in unstructured OTC markets

Comments
  • Goose
    GooseSeptember 30, 2016"But if you use any IDB information to help determine the bid/offer you show your client you are making a price based on other peoples prices. Now if you are talking about just taking a street bid and making it your own, or just pennying a street bid, I would agree that is a C player, and dangerous game. I didn't think the paper was insinuating that was the end goal. I thought it was talking about how an increase in limited transparency in the current marketplace would…"
  • Merlin
    MerlinSeptember 30, 2016"I don't think I said it is not an essential piece of one's workflow. What I said was that traders shouldn't be making prices based on others prices. Recipe for disaster in an illiquid market. Don't bid 98 3/4 on a bond you have no meaningful intelligence on just because someone else is making that bid. They have more information than you, may actually be a seller, not a buyer, may have no bid after they cover their short or fill a client order, etc... You get the pict…"
  • Goose
    GooseSeptember 30, 2016"Merlin, thoughtful commentary and am curious on your take on the IDB markets; only C players use them to price bonds and dealers are routinely giving up where markets are and trades are happening in the street so clearly not protecting price info. When a dealer gives up markets and trades happening in the street, isn’t he using that as validation for where the market is, and as support for what he is trying to get done? When a good customer came in and wanted you to c…"
  • Merlin
    MerlinSeptember 30, 2016"i forgot one thing. Dealers use the IDB madket to move/take on risk when it fits them, not to price bonds, except for the C players. It is the access to liquidity they are protecting, not pricing information. in fact, dealers are routinely giving up where markets are and trades are happening in the street so clearly not protecting price info. And regarding Virtu, did you miss the article where they said they aren't going near FI, even UST's, never mind corporates. Not…"
Human hand open red velvet rope isolated over white

ICAP and the Buy-side – The Desk

Full Article: The Desk

The ICAP Sponsored Access Model (ISAM) is poised to go live, allowing asset managers to trade fixed income on the inter-dealer market for the first time, via their sell side partners. 

Comments
  • Merlin
    MerlinSeptember 16, 2016"Jester, what got into you this week? Not sure why everyone is acting as if this is new news. Well known since the beginning of the year. Actually surprised it has taken them so long to move forward. Plus, what is really the big deal here? Sponsored access to the IDB market; a big yawn. As already mentioned many of the IDB's have been playing footsie with buy side accounts for years, if not decades. And outside of EM, it is not as if there are any electronic screens wh…"
  • Mustang
    MustangSeptember 16, 2016"Ay ay ay, Where to begin. Bravo to ICAP for taking a step in the right direction. I want to reiterate a term that Wolfman mentioned: "emasculated the dealers ". You see, while ICAP is getting the rightful recognition for innovating and trying to provide value, on the other hand, dealers are continuing to get emasculated more. While this article talks about electronic, it is also analogous to voice and potentially portends some very bad things for dealers. Here's my hi…"
  • Jester
    JesterSeptember 16, 2016"Bravo on the innovative step forward by ICAP. This looks like a much better idea than their previous buy-side focused CrossTrade venture (sponsored by Bad Idea Jeans). Perhaps some of the recent departures from their eCom leadership team is becoming addition by subtraction. I have one issue with this article…..actually, this article just articulates (see what I did there?) a major issue with innovation. This entire piece fails to mention the person who actually design…"
  • Wolfman
    WolfmanSeptember 16, 2016"I agree with Cougar. Regulatory pressures to reduce proprietary trading to minuscule levels have emasculated the dealers and forced them to find new ways to service their clients without using their capital as the centerpiece of their offerings. IDBs have always looked to expand their customer base but continually ran aground when the dealer community pushed back, rightfully, and kept the interdealer market, interdealer. I say rightfully because the central issue was…"
Megalopolis business couple passing money. Officeman gives woman her salary. Right invesment to make. Money is the best motivation.

US Regulators Allow BlackRock Funds to Lend to One Another – Reuters

Full Article: Reuters

Mutual funds and money-market funds offered by the world’s largest asset manager could borrow up to a third of their assets in total – or up to 10 percent of assets without posting collateral – through BlackRock’s “InterFund Program.”

Comments
  • Wolfman
    WolfmanSeptember 9, 2016"I'm with Merlin on this one. It sounds like something that the fund wants to do, but doesn't seem like something I'd want them to do with my money. Maybe the 5,300 people who got fired from Wells Fargo can help sort it out...…"
  • Merlin
    MerlinSeptember 9, 2016"No expert on inter-fund lending practices but this doesn't smell right to me. I understand from the article that such practices are 'common' and already in place at Fidelity and Vanguard but why? The article states that MF investors for both funds, the borrowing fund and the lending fund, would benefit as the rate would likely be below alternatives for the borrowing fund and above alternative short term investments for the lending fund. I will leave it to others to co…"
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…"
  • Wolfman
    WolfmanAugust 25, 2016"New ideas need to follow old rules and answer some simple questions, and I certainly haven't listed them all. Feel free to add more in your replies. 1. Does it solve a problem? 2. How many people have this problem? 3. How many other companies are trying to solve this problem? 4. Is my solution unique? 5. Is my solution practical with available talent and technologies? 6. What does the entire solution look like and do I have dependencies on other which I cannot control…"
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…"