By Rob Daly

Direct Match Extinguishes Startup

After raising $9 million in funding and gaining commitments from approximately 60 clients, electronic Treasuries-trading venue Direct Match has turned off the lights of its central limit order book-based business model.

“Everything was going smoothly (in retrospect, too smoothly) until a few weeks before we were set to officially launch in March 2016,” wrote CEO Jim Greco in a posting for Business Insider.” My team pulled off heroic last minute efforts finish paperwork and to integrate software with more than 20 customers. Then, the week we were to do the first love trades, our strategic clearing partner pulled out. Their CEO cited ‘conflict of interest.’”

Greco declined to identify the once partner, but press reports name State Street, which declined to comment for this story.

Direct Match, which named former Direct Edge CEO Bill O’Brien chairman earlier this year, will continue examining its options, but finding another clearing partner is not one of them, he told Markets Media.

Jim Greco, Direct Match

Jim Greco, Direct Match

“We know that Direct Match as originally envisioned isn’t going to happen,” said Greco. “If there’s a good use for the intellectual property that we built or if there’s a larger firm that would like to execute on the vision, we would be excited to speak with them. We have some on-going discussions we a few of those firms.”

He also noted that any market-structure changes that the US Department of the Treasury may plan in the wake of the October 15, 2014 flash crash would take too long to realize.

“Although those types of things would probably enable Direct Match to be successful as originally envisioned, those are two to three years aways,” he estimated. “Think how long it took the swaps market to change. These things have very, very long lead times, which just do not work for a startup unfortunately.”

Wall Street, and the capital markets specifically, tends to be tough on startups, agreed Brad Bailey, research director, securities & investments at Celent.

“There’s always going to be startups that try a new model of trading and come in too early,” he added.

In the meantime, Bailey sees a lot of activity happening in the rates market.

“For instance, J.P. Morgan is backing away from a big part of the dealer repo market and leaving one major competitor, BNY Mellon,” he said. “At the same time, J.P. Morgan is partnering with Virtu Financial on the Treasury side, the extent of which they’re looking at a new model for partnering in liquidity and market making in treasuries. There’s a lot going on in both the market structure and a new model for trading.”


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