KCG Fixed Income, now in its third year of operations, has set its sights on becoming the leading market maker in fixed income, in particular U.S. Treasuries. It has most of the primary dealers on its platform, and has carved out a niche among the behemoths of the market, eSpeed and BrokerTec.

“This is something that is definitely resonating in the fixed-income markets lately,” said Samantha Coyne, head of fixed income client services for KCG. “People historically have never been able to have an attributable liquidity provider in this space. The reason why we are successful is not only because the dealers need us today, but also because we are able to provide a strong market-making capability.”

KCG has built its fixed-income business on the proposition that sell-side firms need more than just a streaming quote. “What we do is provide a market to sell side and prop traders. That way there can be a relationship-based liquidity provision, rather than just putting your market into an anonymous pool and hoping that it goes well,” said Coyne. “While this is something that had been done in FX and equities — this executable, streaming price that looks like an exchange, but is actually a bilateral market maker — it had never been done in fixed income before.”

Trading Technologies, a trading systems provider, recently announced its intentions to connect to KCG Fixed Income with a new liquidity Aggregator tool launched for its flagship X_TRADER platform.

“Trading Technologies has chosen KCG because they acknowledge we are a strong, responsible source liquidity that their users would appreciate accessing via their platform,” said Coyne. “We are pleased to be able to offer our bi-lateral liquidity to their clients.”

TT customers will be able to enter and manage trades on KCG from both X_TRADER and the new TT platform, which is currently available to early-stage users, using a suite of tools including Autospreader, Autotrader, and the ADL visual programming platform for algorithmic trading, as well as TT’s FIX and proprietary API solutions.

“Connectivity to KCG will boost our offering to fixed income traders by providing them with direct access to additional liquidity generated by KCG’s market makers,” Rick Lane, CEO of Trading Technologies, said in a statement. “We think this will be an important differentiator for us as we continue to strengthen our tool suite for the fixed income community.”

KCG Fixed Income launched with its first dealer in October 2012, about a month after Coyne joined. Its message to dealers was that it could provide them with the liquidity they need while at the same time enable them to save on commissions. “Since we’re not an exchange, we don’t have to battle it out on the commission or market data front, so we can actually have individual relationships with each one of the dealers,” she said.

Coyne is convinced that KCG delivers an offering complementary to that of eSpeed and BrokerTec. “While we compete against them in the sense that we are all going after a pool of liquidity that have a discrete number of institutional customers associated with it, we’re very different from them,” she said. “We take principal risk, we’re not an exchange, and we’re not a registered ATS. There’s a number of different ways that we are actually additive to what they are, rather than a straight-up competitor.”

With the advent of Basel III and the so-called Volcker Rule, banks are hard pressed to generate profits from trading, and are being compelled to abandon their own market making businesses. The combination of balance sheet constraints and trying to lower costs are making them look outside of the exchanges. Coyne said, ”We are a liquidity source they would have never had access to before, it adds an extra X percent to their top of books that they would have never seen before, and it’s an attributable source of liquidity.”

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