OpenBondX E-Trading Platform Introduces New Rebate Fee Structure for Fixed Income Trading – PR Newswire
April 21, 2016 \ 9 Comments
Full Article: PR Newswire
Recently launched electronic bond-trading venue OpenBondX, is implementing an innovative pricing strategy that previously has helped transform other markets. A twist on the “Maker-taker” rebate pricing model that propelled the successful electronification of markets in other asset classes, OpenBondX (OBX) will incentivize initiators of order flow with rebates
Philosophically this fee model is right and both takers and makers (should) like it. It’s fair. It’s a good tool to attract existing liquidity from another platform to a new platform if… fees are a sensitive topic AND if the rebates hit the right area (trader P&L vs. somewhere else). So how sensitive is the issue of fees In credit? In this there’s the theoretical answer and the real answer. The former is everybody is fee sensitive because you can’t not be super openly cost concerned is this environment. The real answer is ‘I am so concerned/upset with current providers… Read more »
The etrading plot thickens. The OpenBondX HY offering represents several material changes to the fixed income “open trading” electronic execution space. The protocol makes a lot of sense for HY buy and sell side vs. RFQ spray, but I am going to focus my comments on how OpenBondX is resetting what the “costs” of FI electronic trading and the technology associated with it should be in 2016. Execution -Providing an actionable price in an anonymous environment…not only aren’t you charged, you are compensated for this risk. -Respond to an inquiry, minimal leakage and charged a significantly lower execution cost than… Read more »
Captain Obvious here. Market share relies heavily on the ability to get a trade done and it must reach critical mass/tipping point where if begins to grow organically. Getting people to stay with the platform day after day of not getting trades done is difficult, regardless of the compensation package. Goose is spot on. At $50/m they will have a very difficult time surviving while they (if they) can grow market share. The model of sharing revenue makes sense of there are enough trades generating the revenue to share. Their website indicates that they haven’t launched yet and I suppose… Read more »
I have been involved in marketing a number of platforms over the years and made sure I was braced for the reaction when the question came regarding cost and the answer was always ‘similar to today’s IDB fees’. The majority of the time the question, or more like a statement, came next, ‘why doesn’t anybody compete on fees?”. This always struck me as strange as many platforms over the years have in fact competed with reduced transaction fees and I don’t think Bloomberg has ever charged anything for trading corporate bonds on a multitude of platforms within their infrastructure. Yet… Read more »
An ingenious twist where the ‘taker’ of liquidity gets paid! Actually, initiators in this model are not your traditional price taker as they are required to put in an undisclosed price at which they are willing to deal. Presumably this means that the initiator knows where the market is, or at least has an idea of the bond’s ‘fair value’. Therein is possibly a fatal flaw in the whole model. Will initiators feel comfortable putting out prices? ICAP teamed up with IDC to show evaluated price. BondCube seemed to suffer from the lack of them. The other question that crosses… Read more »
I really like this model as it solved the game theory and effects akin to the Heisenberg uncertainty principal. As Charlie mentioned the initiator/price taker must know where the bonds are trading as when they enter their price it can be autoexecuted if the dealer is inside their price. We’re grown-ups in the Street and if a buyside participant doens’t know where their bonds are trading given marking requirements, bond runs and various data feeds overlayed with their experience they may be in the wrong job. Game theory: rewarding execution over providing free options for multiple RFQs to try and… Read more »
Cougar that is a great point on Heisenberg. I had not thought of it that way. Thanks.
Given the focus on regulation (TCA/Best Ex) and ensuring the end client is getting a fair deal not sure how this works in that world for an Asset Manager / WM. To Voodoo3’s point if the rebate hits the traders pnl and not the end clients is this not hurting the end client? I would be interested to know for the Buy-Side who are using it if they are telling their end clients they are doing so and if the end client gets to choose to ‘route to the destination that actually pays you to route there’. My guess is… Read more »
Interesting question. I know they have solved for this in the equity market. FNL community know how that functions?
Blackrock’s Richard Prager: The Liquidity Is Out There – Institutional InvestorMarch 18, 2016
Everyone is Worried About the Thing Markets Need Most, But They’re Not Asking the Right Questions – Business InsiderMarch 25, 2016
US Companies Overpaying for Bonds; Banks May Be to Blame – ReutersMarch 31, 2016