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Discount Retailer Overstock Has a New Target: Upending Wall St – Bloomberg

Author: \ January 14, 2016 \ 13 Comments

OverstockOverstock.com Inc., which is aiming to radically change how stocks and bonds are bought and sold, is close to unveiling the first securities-trading system using the blockchain technology that makes bitcoin possible. FULL ARTICLE

Comments
  • Cougar
    CougarJanuary 23, 2016"Bonds on the blockchain as a panacea to our liquidity problems is a misnomer. All-to-all trading will fair no better in a native blockchain bond infrastructure that it does now. Knowing who holds bonds would allow us to trade much better but that's not something the buyside wants now nor will they then. Primary issuance buyers won't be published either for the same reason. It will be kept private still. It's not the technology that needs to change to solve this proble…"
  • Cougar
    CougarJanuary 23, 2016"Blockchain is merely a new form of database that has both downsides and benefits. The current hype we see ignores this truth. Many of its proponents should use a traditional centralized database – but they are blinded. However this hype has uses. Its creating new implementations of technology, which are skipping current, legacy infrastructure. Guess what: if you similarly re-architected the financial system’s architecture using centralized databases we’d be settling T…"
  • Merlin
    MerlinJanuary 17, 2016"my understanding is that issuance on the blockchain would be critical, another reason why a transformation will take so long. i dont get the short offer comnent. just because you may be able to message holders of a security (assuming that is part of the developed protocol) doesnt mean you can borrow bonds. it will be difficult enough to rebuild acceptable trading protocols (do you try and rebuild the rfq within the blockchain?), rebuilding a sophisticated and acceptab…"
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    samuel dalyJanuary 17, 2016"In my mind the only way to achieve something meaningful w.r.t to bonds and blockchains is to actually issue the bonds from the start on the chain. Simply bolting on blockchain technology to existing stack may have some benefits (back office tech has been in need of change for decades!) but it wont be the stuff of legend. So..... Fix the issuance process. Issue bonds on the chain. Traders can query the chain to see who owns the bonds. (sorts out the short offer issue m…"
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Confessions of an All to All Advocate – Larry Fondren (TABB)

Author: \ January 6, 2016 \ 13 Comments

ConfessionI confess that the results of the research caused me, despite my advocacy of all-to-all trading, to realize that a dealer-centric trading environment should continue to be the cornerstone of the fixed income market. FULL ARTICLE

Comments
  • Merlin
    MerlinJanuary 9, 2016"Thanks Larry. I think it would be helpful to know how the negotiations actually occur within the digital DelphX netowrk. i mean, how does one communicate that I would like to have an order on 25mm of xyz bonds at z spread (i guess could be at current mkt levels or through, no?) in return for providing you with a 'double allocation' on the next deal of your choice up to xx million in par value? These types of things today, like I will pay 3 bps through the market to bu…"
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    Larry FondrenJanuary 8, 2016"Merlin - I don't have a problem with your assessment that a pending transaction for which all terms have been agreed, but has not yet been executed, could also be considered as a "firm order" that has been mutually structured between the potential counterparties. That said, it seems to be a matter of semantics resulting in a distinction without a difference. As to the question of context, the pending trade ("firm order") will have been confidentially negotiated betwee…"
  • Merlin
    MerlinJanuary 8, 2016"How do you have a 'trade' that is 'not a trade'? If the dealer can decide not to execute it then it was never a trade but a firm order for a set period of time that cannot be canceled by the buy side. Are you envisioning these 'trades/orders' to be within the context of existing quotes/markets or away from the market? i am assuming away given the time frames you mention. And the concept of a buy side account getting favored pricing or new issue allocations doesn't sou…"
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    Larry FondrenJanuary 8, 2016"No. It is an asset manager (or another investor) negotiating with a given dealer the terms of an immediately executable trade while concurrently negotiating the terms of a binding contract that: 1) postpones execution of the trade for a specified period of time; 2) enables the dealer to unilaterally lift the postponement during a specified period; 3) records the incentive(s) the dealer will convey to the investor for postponing the trade; 4) places the pending trade i…"
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Forget Junk, Many 3rd Ave Holdings are Trash – The Street

Author: \ December 17, 2015 \ 5 Comments
unloading truck in a mountain of trash

Just how bad are the assets in Third Avenue Management’s Focused Credit Fund? They are bad enough that one has to wonder if it is even fair to call them assets. FULL ARTICLE

 

Comments
  • Cougar
    CougarJanuary 23, 2016"This is really a non-story as it is merely the risk-reward pay-off demonstrating high risk means that you can lose money If there is a story, and I'm sure there is, it would be around the marketing of the fund and the transparency used to explain its portfolio construction and management. Certainly from a regulatory perspective its disclosure appears fine.…"
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    SliderDecember 17, 2015"Excellent article! While other media outlets are reporting this incident as a portent of things to come in the broader debt market, this piece sticks to the facts regarding Third Avenue's actual portfolio. The distressed bond market is like another universe when compared to the investment grade and high yield markets. Orders in distressed bonds can go unfilled for weeks if not months, so offering anything close to same day redemptions to investors is laughable. Fun fa…"
  • Wolfman
    WolfmanDecember 17, 2015"To be fair, the fund's prospectus states the fund might look to make investments in bankrupt companies and that those holdings could be difficult to sell. Also, the fund is a high-yield and distressed fund, so by definition the holdings are not going to be pristine. Even so, this fund took "slumming it" to new levels.…"
  • Goose
    GooseDecember 17, 2015"I echo Merlin’s thoughts on the investors in this fund. Perhaps shades of Captain Renault in Casablanca? https://youtu.be/qmywwiZth5E Rick: How can you close me up? On what grounds? Renault: I am shocked, shocked to find that gambling is going on in here! Croupier: [hands Renault money] Your winnings, sir. Renault: Oh, thank you very much. Everybody out at once! I was really struck this week by the media narrative around this news. The headline risk for all high yield…"
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When Can Bond Traders Lie to Their Customers – Bloomberg View

Author: \ December 10, 2015 \ 8 Comments
PinocchioThe first argument — that information about what a dealer paid for bonds is not relevant to a reasonable investor who has done his own homework on value — is sort of appealing, but probably not right. FULL ARTICLE 
Comments
  • Zob
    ZobDecember 11, 2015"Mortgage Bonds. Thrifts. 80s... Ha ha! how the world has changed... and for the better BUT at the same time is this about changing human nature or just applying the old Pinocchio saying of 'don't lie or at least don't get caught lying'.…"
  • Merlin
    MerlinDecember 11, 2015"Wet towels are ok. If a house last sold for $1.5mm and is now listed at $1.2mm, is that an opportunity to purchase from a motivated seller or have equivlent houses been selling for $1mm still overstating the value of this house. It is not what this house last traded at but what alternative options are available and whether this house appears to be good value or not. Same for bonds. And your statement that there is no fundamental reason a simple 4-bedroom house in the…"
  • Chipper
    ChipperDecember 11, 2015"Sorry to be the wet blanket, but I think the used car analogy doesn't fit well here. But to stick with it, what if the car was being financed by the dealer, and they sold it to you at $20,000 but then valued it at $17,000 for financing purposes because that is the true value in their mind? Maybe residential real estate is more applicable...if you buy a house in CT you absolutely want to know the last price paid for it, the improvements since, the comparables, etc. If…"
  • Merlin
    MerlinDecember 10, 2015"First is reaction is they are kidding. Traders constantly mis-represent the level they bought or can buy bonds (at least pre-TRACE or those not reported on TRACE) as they use any/all tools/methods to extract the maximum amount of profit without risking the client finding out. And as has been discussed, does it matter? Prices move for all kinds of reasons that are security specific, issuer specific, industry specific or just with the market. What does one think the bon…"
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What’s happening to liquidity in the bond market? – Brookings Institute Video

Author: \ December 2, 2015 \ 1 Comment
Blind Leading Blind[CLICK HERE FOR VIDEO] 

On November 17, The Hutchins Center on Fiscal and Monetary Policy at Brookings and Ben Bernanke, now a distinguished fellow in residence at Brookings, hosted a discussion focusing on lessons from history, the role of collateral in the financial system, liquidity in bond markets, and the shadow banking system.

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    CharlieDecember 3, 2015"A thought provoking video including brief presentations by three eminently qualified people from Stanford, Harvard and the Fed. I found it worth an hour of my time. Here are some of the things that I came away with: The Moderator David Wessel summed up the obvious question I had when he said “So in our attempt to get a diversity of views on the stage we didn't represent the people in the industry who are most worried.” Why not David? You missed a fantastic opportunity…"
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Money Managers Now Have a Record Proportion of Their Portfolio Dedicated to Corporate Bonds – Bloomberg

Author: \ November 19, 2015 \ 0 Comments


overweight_passengerAllocations to corporate bonds by big buy-side investors moved to 35.5 percent, up from 35.3 percent last week, according to the latest Stone McCarthey survey of senior money managers. It is an all-time high for a data series that began back in 1999, when the figure was as low as 19.1 percent. Full Article

Middlemen the Key to Corporate Bond Market’s Electric Dreams – Reuters

Author: \ November 10, 2015 \ 6 Comments
Electric Dreams“The only electronic platforms that have succeeded are those with a dealer on the other side who is willing to commit capital and facilitate the transaction,” said Rick Rezek, a senior portfolio manager at Schroders. “I wouldn’t want to put something on a platform at BlackRock and let them see what I am doing, and they wouldn’t do that either.” Full Article 
Comments
  • Merlin
    MerlinNovember 13, 2015"What I would like to read about is the progress that these alternative platforms are making. How many participants do they REALLY have? How many fully executed documents do they have back? How many firms are executing transactions on their system (and paying for them)? What is their trading volume? Does anyone really care any more how many orders any of them might have? All you have to do is look at poor Bondcube that was hyping their multiple billions of orders days…"
  • Goose
    GooseNovember 13, 2015"Break out the torches and storm the castle! I love all this talk about eliminating the unnecessary dealer/liquidity provider, we don’t need them!! Question, what would the market of the most liquid, regulated price formation market in the world, look like if everyone who is being compensated in some way to provide liquidity (market structure, maker/taker, etc) decided to turn off the switch all at once. How many bids/offers would be left, and how many buy side firms w…"
  • Wolfman
    WolfmanNovember 13, 2015"There's so much here to work with. It seems that the reality is beginning to sink in. e-commerce solutions don't eliminate the need for all traditional methods of commerce. Hell, Amazon has opened a physical bookstore! Bonds aren't equities. Some bonds may trade like equities, like benchmark treasuries, but that's a function of a bond with no risk of default (I hope!) being used as a rate product, not as a credit trade. Anyhow, back to the article. First, Aladdin has…"
  • Zob
    ZobNovember 13, 2015"Having no special sympathy or otherwise for Market A, all I can say is that by adding a simple protocol to their offering rather than 'revolutionising' the universe they have unlocked liquidity (especially in Europe) and good to them. Fintech guys in this space who are picking up awards for innovation and 'disruption' left right and center but haven't billed a$ or printed a trade are eventually going to be found out and the gullible anti-sellside, anti-broker, anti-mi…"
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Are IDBs Obsolete? (Chris Ferreri) – Tabb Forum

Author: \ November 5, 2015 \ 4 Comments

ObsoleteMany market structure pundits claim the IDB model is becoming obsolete with electronification of fixed income. But nearly 15 years after the death knell first rang for IDBs, they are still a significant component of the wholesale markets. Full Article 

Comments
  • Sundown
    SundownNovember 11, 2015"One can argue that the IDBs have been the one of the most innovative participants in the current market structure. They are not the fat, lazy person on the other end of a phone yelling like they once were. They are sophisticated businesses operations run by savvy market structure people. Since they are were capital meets need, they are probably the best at determining inflection points in market structure. Many have dismissed these IDB participants as subordinate or c…"
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    CharlieNovember 10, 2015"The question that immediately sprang to my mind on reading this article was 'are dealers actually becoming brokers'? One can perhaps see why dealers are getting so upset when IDBs start to speak with clients. Dealers value proposition is less putting capital at risk and is more about distribution, something that IDBs have done well for decades. If, as anecdotally we are continually being told, dealers are in fact becoming order takers and searchers for the other side…"
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    Gab FredianiNovember 8, 2015"You only have intermediation if there's money paid for a valuable service. In the old days some of this added value was made up of entertainment and other nicies that are no-go today! I remember discussing what made a good broker: 'one who brings in lots of money' says his employer... 'One who brings me good flows/business/prices' says the dealer. Voice and hybrid Businesses alone will not be big or significant enough to build those powerhouses from the late 90s which…"
  • Goose
    GooseNovember 6, 2015"There changes Mr. Ferreri mentions are definitely causing a lot of angst in the IDB/Dealer relationship. The value proposition that drove the compensation structure of the IDB market continues to be under pressure. Dealers mainly pay brokers to maintain an anonymous wholesale market where they can add/lay off risk, and most importantly of all, get price discovery, all away from the eyes of the clients they serve. Changes are leading to less balance sheet/less propriet…"
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Humans 1, Machines 0 – Bloomberg View

Author: \ October 29, 2015 \ 5 Comments
Man vs. MachineThe (IDC) deal underscores the many ways in which bond trading is unlike buying a book or a vacuum cleaner or a 24-pack of toilet paper online. Credit traders rely on the color they get from talking to one another. Without information and some level of trust, it’s hard to lure investors and dealers to the same place to make a deal, regardless of the technology. (Full Article)
Comments
  • Merlin
    MerlinOctober 30, 2015"The issue isn’t ‘humans vs. machines’. It is people no longer willing to share information they way they once did. Things have gotten so bad that the buy side, in surveys, have stated that they break up trades, presumably to hide intentions from the sell side and I have heard first hand from sell side traders that they don’t even want to tell their own salespeople about some of their positions/axes due to concern that information leakage could hurt them. With investor…"
  • Goose
    GooseOctober 30, 2015"Interesting take on the acquisition. I was thinking that as their core futures business matures, ICE was looking more at it as a diversity play with consistent revenue than as a statement around FI trading. Anyway, I completely agree with the point around human interaction in the credit market pricing process. Evaluated pricing is a great business to be in. Financial institutions investing in heterogeneous markets need to have a value on assets, retail statements, etc…"
  • Wolfman
    WolfmanOctober 29, 2015"I summed this up as “putting your money where your mouth is”. Isn’t it interesting that in the same week we learn some of the details surrounding a $25 million investment from Peter Thiel and George Soros for a fully electronic bond platform, one of the most successful industry visionaries in the past decade invests more than 200 times as much in a business which relies on humans to price bonds. What might be more interesting is to see what ICE plans on doing with the…"
  • Chipper
    ChipperOctober 29, 2015"While I don't disagree with the premise that humans are important, I don't think this deal show that. In fact, I think it points more to a disturbing "rise of the machines" than does electronic trading (which is still done bilaterally by humans, one trade at a time. The reality is that the IDC data is an amalgamation of dealer quotes with little discretion paid to the quality of the quotes. As such, it takes the flawed effort of humans and applies a computer's veil of…"
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