Jim Rucker, credit and risk officer at bond-trading platform MarketAxess, says, “In the US high grade market there are something like 45,000 different instruments, which goes up to 75,000 if you include high yield bonds. This year asset manager BlackRock is planning to launch the Aladdin Trading Network (ATN), a fee-based crossing service for its buy-side clients, which it hopes will be a “paradigm shift in the way corporate bonds are traded on the buyside.” It is planned that the platform will be opened for the trading of equities and other securitised assets at a later date. The firm has rolled out the service in US and Europe and plans to increase the frequency if the platform is successful.
Investment bank UBS’s single-dealer platform, Price Improvement Network – Fixed Income (PIN-FI), also allows trading of fixed income although the volumes seen are low at present.
In January 2012 PIN became a liquidity supplier to Galaxy, a fixed income multilateral trading facility (MTF) launched by trading system supplier TradingScreen in 2011. Established platforms such as MarketAxess are also looking to introduce different trading styles. Stuart Campbell, head of global fixed income trading at asset manager Invesco, uses electronic RFQ platforms aggressively but currently avoids crossing platforms or single dealer platforms. The corporate debt market has been punished by the limits that regulations have imposed on banks’ trading activity. It offers two five-minute trading sessions on Tuesdays and Thursdays, one dealing with a high yield bond and the other an investment grade bond, and both supported by a fixed level of liquidity guaranteed by the bank.
Basel III is racheting up the capital requirements for banks to hold inventories of bonds, while the Volcker Rule, part of the Dodd-Frank Act in the US, is preventing banks from trading off their own book. Europe is home to some 150,000 tradeable corporate bonds but only 6,000 equities, the authors observe.Nonetheless, they report that a number of electronic bond marketplaces have been launched over recent years, by “a surprisingly broad range of market participants, including exchange operators, hedge funds, banks and asset management companies”.
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